By james art Inflation and job growth may determine the next president.
It is not whether the nation’s economic performance influences the vote, but which share of the economy has the biggest say.
Personal finance is very personal. The parts of the business world that affect your checkbook may not matter to others.
My trusty spreadsheet looked at seven economic benchmarks — cost of living, hiring rate, gross domestic product, mortgage rates, unemployment, stock market and wages — looking for any clues as to who would control the White House next year.
The performance of these metrics in the third quarter was compared to four years earlier for the last 12 years of presidential elections, from 2020 to 1976. The ranking of these periods was a modest calculation of the question “are you better off than four years ago years”.
To create a historical scale, the 12 presidential terms were divided into thirds for the seven metrics. The top four results are seen as economic signals that the ruling party will stay in power. The bottom four scores are considered change predictions. The middle third was an “undecided” opinion.
Did these calls turn out to be true? Here’s what I learned, ranked by relative accuracy.
The best bets
The most clairvoyant indicators are inflation and job growth, with their highs and lows correctly identifying control of the White House with 88% accuracy.
For starters, the cost of living is always a hot topic. And in recent years, we’ve been reminded just how anxious Americans get when inflation skyrockets. When trips to the store become painful for household budgets, voters act accordingly.
But an abundance of job opportunities is also a critical element of economic well-being. A steady paycheck heals many families’ financial challenges.
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So if the bosses hire quickly, voters seem happy to keep the White House in the same hands. But they will charge the leadership when layoffs are too frequent.
The next best economic indicators for presidential forecasts are GDP and mortgage interest rates with 75% accuracy.
Now GDP is a relatively difficult to explain broad measurement of business output growth. Still, it is somehow valued by voters, who probably appreciate levels of commercial activity without easily quantifying it.
This statistical ambiguity is in stark contrast to the cost of a home loan. Americans love to borrow, and financial spending is a closely watched factor in life and voting habits.
Then came unemployment, which was correct in 63% of the 12-year forecasts.
On the one hand, you’d think the unemployment rate would have the power to swing the vote. On the other hand, most people remain employed even during the darkest economic downturn.
Unless you or a loved one is out of work, the unemployment factor may not be a vote-swinging factor.
Bad forecasters
The stock market has been correct about the presidency only half the time over the past dozen elections.
Many Americans have little money on Wall Street and do not follow its movements closely. Disinterest or embarrassment may be why this is a somewhat poor predictor of election results.
Finally, there are salary increases. Their moves have been right on the polls only 25% of the time since 1976. Now, why shouldn’t voters care about how much wages typically rise?
- INFLATION TRENDS: what’s up What’s cheaper? what’s next CLICK HERE!
First, remember that rising wages are often part of an inflationary problem. People in these eras may focus more on the rising cost of living than the higher salary.
Second, I bet most Americans feel they deserved their pay raise, not that it was the product of any presidential policy.
Bottom row
Just to be sure, I created a simple index of economic performance for each of the last 12 presidential terms by averaging the rankings for the seven criteria.
This composite index had a surprising 88% accuracy. If anything, we see that economic fluctuations often parallel political outcomes.
White House incumbents win in good times – and are ousted in bad times.
Look ahead
Let me reward you for coming this far with a peek at what the economic statistics show for 2020-24. This comes with a strong caveat: I’m not trying to change anyone’s vote.
The economic results of Joe Biden’s presidency are complex. And Vice President Kamala Harris taking her place at the top of the Democratic ticket makes the relationship even more complicated. Yet, consider what was found when I redid the spreadsheet math to include the past four years.
Based solely on inflation performance, Biden’s party leaves the White House. This is a “loser” signal that has been 100% correct since 1976.
Based on job growth, however, Democrats retain the presidency. This is an equally correct “winner” signal.
Remember that these are the two “best” indicators. One of them will be wrong this time.
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Let me point out that mortgage rates are also hinting at a loss. Still, GDP, unemployment and the stock market suggest a win – as does my mix of seven benchmarks.
Like I said, it’s complicated.
Jonathan Lansner is a business columnist for the Southern California News Group. He can be reached at [email protected]