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Flipping the Election Question

December 20, 2019

At ITR Economics, we’re often asked, “how will the 2020 election impact the economy?” But what kind of answer do you get when you flip that question? Tune in to this week's TrendsTalk to discover some potential answers.

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ITR Economics' Divider


Transcript by Rev

Connor Lokar:
Hello, and thanks for joining me. I'm Connor Lokar, economist on the team here at ITR Economics. this is my latest TrendsTalk. Today we're going to be talking about flipping the election question. Now, a question often asked to us and one that I expect I'll be asked a lot more and so will the rest of the team here in 2020 is it's very often phrased as far as what impact does the election have on the economy and ITR's economic forecasting? In my mind, I think the question becomes much more compelling if we switch and flip that around and ask what impact might the economy and its cycle have on the dynamics of the 2020 race?

Now, very recently, both Brian and Alan Beaulieu in their recent TrendsTalks, which I'm sure you can get to in just a few short clips from your current screen, they took on that conventional question as far as the election's impact on the economy and our forecast and, spoiler, the short answer is not much of an impact at all. We are politically agnostic here at ITR. We do not lean left. We don't lean right. We don't take sides. Really, from our perspective, it doesn't matter whether it's a red tie or a blue tie in the Oval Office. In those TrendsTalks, and blogs, and other areas, we've dissected and really shown that there is no meaningful correlation when it comes to economic performance and the party holding the White House. In fact, average growth rates for the two parties land within a few hundredths of a percentage point, dating back to the last four or five decades.

But when flipped, I do think it becomes a bit more of an interesting conversation as far as what impact may the 2020 economic cycle have on the presidential election. Now, at present, the US economy's on the backside of the cycle, whether looking at it through a gross domestic product lens or an industrial production lens. That is a fact. Maybe impressive runs from the stock market recently and strong jobs reports, which in a blog post of mine I debunked as being actually a lagging indicator, but nonetheless, those two trend lines may be obscuring that fact for most Americans that things are slowing down. But at ITR, we can very plainly see the softening and the hard trend lines for the economy.

Now, this is something that here at ITR we anticipate will worsen well into the first half of 2020. Now, what that means is the possibility, if not likelihood, of lackluster GDP reports for the fourth and first quarter of 2020, softer jobs reports, retail numbers, perhaps some associated noise in financial markets and of course the media coverage to go with it. Now, the Trump reelection team I suspect is not ignorant of these softening numbers at the underbelly of the US economy and whatever democratic challenger that rises to the top will and certainly would seize on a weakening economy, which has consistently been one of President Trump's, as far as his handling the economy, has been one of President Trump's highest polled issues.

I think we actually might already be seeing some of that economic pressure playing out in as we look to the US-China trade war. Here we are in mid moving to late December now as I record this. We see the US and China pushing towards a possible phase one trade deal, which would really mark the first major deescalation of the spat between the two, should it hold up. Big if on that side, but this would, at first glance, involve some concessions on the US side, canceling planned tariffs on consumer electronics, lowering some existing tariffs on China, in exchange for, again, as far as what I've seen to this point, generally undefined commitments from China in terms of energy, agricultural, other purchases, along with some pretty opaque language as far as addressing the intellectual property side of things or currency manipulation. Again, at first glance, this looks to me like a ceasefire at best, effectively a blink on the US side of the trade table. Again, I have to speculate concern for the 2020 general election, the economy's well being up to that point is a consideration. Trade wars, as we know, they're not zero sum affairs, and while China is certainly feeling some pain, the United States is as well, not to mention collateral damage and overflown unintended consequences spilling over to other economies across the globe that's being felt by the two largest economies on earth duking it out.

The reality is that President Xi in China is president for life. There is no looming election year. But President Trump and his trade team maybe considering putting a pin in the China trade war to perhaps dial down a bit of the global uncertainty, alleviate pressure on the global economy, with a chance to reopen the conflict with no restrictions if successful in their reelection bid in November.

Again, that's just one narrative that I'm going to be watching in 2020. The economy's performance next year could also impact things like how appealing or not some of the ideas and proposals emanating from different democratic challengers are as far as regarding structural changes to the American economic system and the tax code. Another trend looking at how currently softening industrial and manufacturing trend lines, which we're seeing worsening by the month, how that may factor into battleground rust belt states in 2020 strategies in those places, if at all. Just in general, the electorate's perception of the economy and their place in it and how that might affect voting activity in a little under a year. All of those seem, to me anyway, like interesting developments to watch.

Now, again, we've discussed at length that the election is not impacting or driving our 2020 through 2022 forecast. But if you are intent on tracking the election and the economy, consider flipping that question around and asking yourself what impact might the economy have on the election? I think you'll find it yields a much more interesting discussion. Thanks for joining me. I'm Connor Lokar.



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