Low approval ratings and rock-bottom consumer confidence numbers have weighed on President Biden for months now, a worrying sign for the White House as the country enters a presidential election year. But recent data suggests the tide is starting to turn.
Americans feel more confident in the economy than they have in years, by some measures. They increasingly expect inflation to continue to fall, according to preliminary data, and they think interest rates will moderate soon.
The return of optimism, if it persists, could bolster Mr. Biden’s chances as he pushes for re-election — and cause problems for former President Donald J. Trump, who is the favorite to win. Republican nomination and caused the outgoing Democratic president’s economy to explode. save.
But political scientists, consumer sentiment experts and economists said it was too early for Democrats to take a victory lap around the latest economic data and confidence numbers. Many economic risks remain and could derail apparent progress. In fact, models that attempt to predict election results based on economic data are currently predicting a November draw.
“We’re still very early in the election cycle, from an economic factors perspective,” said Joanne Hsu, who runs one of the most frequently cited sentiment indexes as director of consumer surveys at the University of Michigan. “A lot of things can happen.”
University of Michigan Preliminary Survey for January showed an unexpected emergence consumer confidence: the index climbed to its highest level since July 2021, before the emergence of inflation. Although the measure of trust could be revised – and is still slightly below its long-term trend – it has recovered quickly across age, income, education and geographic groups in recent years. over the last two months.
Restoring confidence could help Mr. Biden, said Neil Dutta, an economist at Renaissance Macro, especially if consumer confidence continues to improve this year as he expects.
If sentiment simply hovered at today’s levels, he said the simple historical relationship between consumer confidence numbers and incumbent vote share would give Mr. Biden about 49 percent of the vote. But the job market is strong, gas prices are moderate and the stock market just hit a new record high, all of which could lead to further improvement.
Ray Fair, an economist at Yale, has produced for decades the most followed model of how economics affects election outcomes. Her the model uses concrete economic data — growth and inflation — to predict votes. His latest update suggests that Democrats have a 50/50 chance of winning the White House in November, and similar chances in the House.
Why should the race be so tight under this model, at a time when economic growth is solid? It comes down to inflation. Voters tend to have a long memory when it comes to price increases, Mr. Fair said. They think about how much prices have risen over the course of a president’s term, not just the latest inflation numbers.
This means that even though prices have risen at a historically fairly normal rate over the past six months, voters will likely remember 2022 and the end of 2021 where they climbed quickly.
“Voters are looking beyond that: The fact that the price level is higher than when Biden took office is what voters are seeing,” Mr. Fair said.
That said, two big surprises Mr. Fair’s pattern came in 2016 and 2020, when Mr. Trump’s performance was worse than would have been expected based on the state of the economy alone. So it’s possible that if such a drag repeats itself — if there is what Mr. Fair called a “negative Trump residual” — it will help Mr. Biden capture a larger share of the vote, even with higher prices. students. (But there are too few data points to test this possibility, Fair notes. on his website.)
There is also much uncertainty about how consumer confidence and the broader economy will influence the election results this time around. There’s no doubt that what happens with the economy will matter, said Michael Lewis-Beck, a political scientist at the University of Iowa.
“The role of the economy is as fundamental as possible: it is like rivers flowing into the sea,” he said.
But Mr. Lewis-Beck pointed out that other factors – such as the sense of isolation that has haunted many people since the coronavirus and the fact that Mr. Trump is a former president who may be seen by voters as a “quasi -incumbent” — could muddle how economic data and election results track each other.
Still, what happens with the economy over the next six months will likely influence how Americans feel as voters head to the polls later this year.
If economies slow, that could be bad for the White House. Months of rising interest rates from the Federal Reserve could start to weigh on growth, for example, or geopolitical unrest in the Middle East could push up gas prices.
But most economists expect the Fed to begin cutting interest rates and the economy to gradually slow in 2024. Forecasters in a Bloomberg survey expect unemployment to rise by ‘about half a percentage point by the end of the year, and inflation continues to slow. and that economic growth moderates but remains positive.
This slightly optimistic outlook may explain why Mr. Biden’s administration is now touting improving consumer confidence data — which has long appeared to lag behind improvements in the real economy. Mr. Biden noticed the last jump during a speech Friday and said “we still have a lot to do,” while highlighting recent economic progress.
“People are looking at all these things,” Mr. Lewis-Beck said. If Mr. Biden wants to convince voters, he “should stay true to his message, and I think it will ultimately come through.”