With less than 10 days remaining before the election, the economy has continued to line up in Vice President Kamala Harris’ favor.
Gas prices and mortgage rates are down. Inflation-adjusted incomes are up. And consumer confidence is tepid but well above the threshold that historically has signaled a recession.
In past presidential races, those kinds of economic vital signs have reliably foreshadowed victory for the incumbent party in the White House. And Moody’s Analytics’ final election computer model says there’s a 55.5% chance Harris will narrowly win based largely on those positive indicators.
But this is anything but a normal election.
Typically, the economic indicators and Americans’ perception of them match. Yet some voters have continued to say former President Donald Trump would be a better steward for the economy than Harris, a view that forecasters say has been molded by the pandemic-induced inflation spike of 2021 to 2023.
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Is inflation really going down?
To be sure, the annual inflation rate has eased from a 40-year high of 9.1% in mid-2022 to 2.4% in September – modestly above the Federal Reserve’s 2% goal, based on the consumer price index. But prices are about 20% higher than they were when President Joe Biden took office in January 2021, and economists say that still has many voters leaning toward Trump.
Moody’s economist Justin Begley says the firm’s election model reckons Americans’ most recent experience of inflation, the job market and economic activity will hold sway and give Harris a slight majority of the vote in enough of the seven swing states to nudge her to an Electoral College victory.
“That’s a tailwind for Harris,” Begley said of the sturdy economy. “Perceptions of the economy aren’t outweighing the hard data in our model.”
Here’s a quick rundown:
Gasoline prices
Regular unleaded gas prices averaged $3.15 a gallon nationally on Thursday, down from $3.54 a year ago and $5 in summer 2022, according to AAA. Prices would have had to jump to $3.77 a gallon or higher in the July-September quarter to swing the contest to Trump, the Moody’s model shows, though a big spike right before the election also could sway votes.
Pump prices, which consumers see daily, serve as the most visible proxy for inflation, Begley said.
Mortgage rates
Thirty-year fixed mortgage rates are averaging 6.44%, according to Freddie Mac. That’s up from about 3.7% before the pandemic but down from nearly 8% a year ago. Rates would have needed to climb to 7.45% to move the needle from Harris to Trump, Moody’s said.
Americans, Begley said, view their home mortgage payments as their most significant borrowing cost.
Inflation-adjusted income growth
Average incomes after figuring inflation are up 1.8% from a year ago. They would have had to tumble 8.1% annually to change the election outcome, Moody’s said.
This is a telling measure because it accounts for inflation, the health of the job market and Americans’ purchasing power, Begley said.
Consumer confidence
In September, consumer confidence fell by the most in three years on concerns about a softening labor market and business conditions, the Conference Board said, though job growth remains healthy. The consumer confidence index, at 98.7, is down from its post-pandemic average and significantly below its pre-crisis average but well above the 80 threshold that signals a recession.
Despite strong economic and job gains, consumer sentiment has been dampened by inflation the past three years. Confidence can foretell consumer spending, which makes up 70% of the economy.
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Predicting the presidential race based on these measures isn’t an exact science, Begley said, and the thresholds vary based on circumstances each election year. Big changes that fall short of the benchmarks also could alter the outcome, especially in tandem with other developments, such as an escalation of the conflict in the Middle East.
The Moody’s model also factors in other variables, including voter turnout for the non-incumbent party, the incumbent party candidate’s approval rating, and the vote share garnered by third parties.
How does the economy influence voting decisions?
But since 1980, each incumbent party presidential candidate whose economy has stayed on the positive side of all the key thresholds has won, and each that has fallen short on one or more of the measures has lost, Begley said.
In 1980, gas prices and mortgage rates were high amid the Iran-Iraq War and high inflation, helping doom Democratic President Jimmy Carter. In 1992, Republican George H.W. Bush lost as consumer confidence plunged after the 1990-91 recession. And Trump lost in 2020 as economic confidence slid in the early days of the pandemic.
Bush and Trump also were hobbled by recessions before or during their election years. Such downturns are likely to drive votes to opposing candidates regardless of the key economic gauges, Begley said.
Despite Harris’ advantage in the Moody’s model, Begley called the race “a toss-up” and said “it wouldn’t take much for the model to assign Trump a win.” For example, he said, if Trump can drive just a 1.5% stronger Republican turnout than he did in 2020 “and/or overperform among independents, he will win,” along with myriad other possible developments.
Other forecasters give Trump a decided edge on the economy, saying Americans’ views will carry more weight in the voting booth than positive economic data.
“It appears that the experience of high inflation continues to dominate voters’ perception of the economy,” said David Self, Nomura’s chief economist for developed markets. As a result, although forecasters “overwhelmingly see the economy as doing well,” Self believes “it’s more of a liability for Harris than a strength.”
Who is leading polls for president?
Overall, Harris had a 46%-43% lead over Trump this week, according to the latest Reuters/Ipsos poll. But 70% of registered voters said the cost of living was on the wrong track and 60% said the economy was headed in the wrong direction, according to the poll. Forty-six percent said Trump had a better approach on the economy compared with 38% who favored Harris, though Harris has narrowed Trump’s lead on that issue across several polls in recent weeks.
A Wall Street Journal poll had Trump leading broadly, 47%-45%.
Oxford Economics has come up with two divergent election models that depend on how swing voters view inflation. If they “focus on the rate of change in consumer prices, rather than the price level, they will be more inclined to support the vice president due to the significant moderation in inflation since mid-2022,” Oxford economist Bernard Yaros wrote in a research note. That model features a “misery index” that sums up the inflation and unemployment rates.
In that case, Harris is likely to win the electoral vote 281-257, he said.
But “if enough independent voters in battleground states still feel sticker shock from the alarmingly high inflation of 2021 and 2022 …Trump is projected to win the Electoral College” 297-241, Yaros wrote.
“It is difficult, if not impossible, to know which model will most accurately capture the extent of voter discontent with the inflation shock during the past four years.”