Americans’ economic confidence is returning. Will Biden benefit?

Americans' economic confidence is returning.  Will Biden benefit?

Low approval ratings and extremely low consumer confidence data have dogged President Biden for months, a worrying sign for the White House as the country enters a presidential election year. But recent data shows that the situation has started to change.

By some measures, Americans are feeling more confident about the economy than they have in years. Preliminary data indicates that they expect inflation to continue to decline and they think interest rates will drop soon.

The return to optimism, if sustained, could boost Mr Biden’s chances as he pushes for re-election – and former President Donald J. That could spell trouble for Trump, who is the frontrunner for the Republican nomination and is blaming the Democratic incumbent’s economic condition. record.

But political scientists, consumer sentiment experts and economists alike said it was too early for Democrats to pin victory on the latest economic data and confidence figures. A number of economic risks remain that could derail the apparent progress. In fact, models that try to predict election outcomes based on economic data currently point to a tossup coming in November.

“From an economic factors perspective, we’re still very early in the election cycle,” said Joan Su, director of consumer surveys at the University of Michigan and head of one of the most cited sentiment indices. “A lot can happen.”

University of Michigan preliminary survey for January showed an unexpected surge In consumer sentiment: The index reached its highest level since July 2021, ahead of the rise in inflation. Although the confidence measure may have been revised up – and is still slightly below its long-term trend – it has been recovering rapidly across age, income, education and geographic groups over the past two months.

Renaissance Macro economist Neil Dutta said regaining confidence could help Mr Biden, especially if consumer sentiment continues to rise this year as he expects.

He said that if sentiment remains at today’s levels, the simple historical relationship between consumer confidence readings and current vote share would give Mr Biden about 49 per cent of the vote. But the job market is strong, gas prices are moderate and the stock market has hit a new record, all of which could lead to a further recovery.

Ray Fair, a Yale economist, has for decades created the most closely followed model of how the economy plays a role in election outcomes. His Model uses hard economic data – Growth and inflation – to predict votes. Its latest update shows that Democrats face a 50-50 chance of winning the White House in November, and a similar chance in the House.

At a time when economic growth is solid, why is the race predicted to be so close under this model? It reduces inflation. Mr Fair said voters have long memories when it comes to price increases. They think about how much prices have risen during the president’s tenure, not just the latest inflation readings.

This means that while prices have risen at a historically fairly normal pace over the past six months, voters are likely to remember the end of 2022 and 2021, when they were surging.

“Voters look back even further than this — the fact that price levels are higher than when Biden took office,” Mr. Fair said.

said that, two big surprises Mr. Fair’s model came to fruition in 2016 and 2020, when Mr. Trump performed less well than predicted based on the state of the economy alone. So it’s possible that if such a pullout is repeated – if there is what Mr. Fair calls a “negative Trump residual” – it will help Mr. Biden garner a larger vote share even with higher prices. (But there are too few data points to test that possibility, Mr. Fair says.) on his site,

There are also a lot of uncertainties about how consumer confidence and the economy in general will play out given the election results this time. There’s no doubt that what happens to the economy will matter, said Michael Lewis-Beck, a political scientist at the University of Iowa.

“The role of the economy is just as fundamental: it is like rivers flowing into the ocean,” he said.

But Mr Lewis-Beck pointed out that other factors – such as the sense of isolation that has plagued many since the coronavirus struck and the fact that Mr Trump is a former president whom voters may view as “semi-outgoing” – This could confound how closely economic data and election results track each other.

Still, what happens with the economy over the next six months is likely to influence how Americans feel when voters head to the polls later this year.

If the economy slows, it could be bad for the White House. For example, months of Federal Reserve interest rate hikes could weigh on growth, or geopolitical turmoil in the Middle East could push up gas prices.

But most economists expect the Fed to start cutting interest rates and the economy to gradually cool down in 2024. Forecasters in a Bloomberg survey expect unemployment to rise by about half a percentage point by the end of the year, keeping inflation subdued. And economic growth remains moderate but positive.

This mildly optimistic outlook may explain why Mr Biden’s administration is now touting improving consumer sentiment data – which has long been seen to be slowing the recovery in the real economy. mr biden Noted the latest surge “We have more to do,” he said during a speech on Friday, while also highlighting recent economic progress.

“People are looking at all these things,” Mr. Lewis-Beck said. If Mr Biden wants to reassure voters, he must “stay on message, and I think it will ultimately get through.”

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