The economy isn’t always decisive in US presidential elections, except when it is. Think Herbert Hoover in 1932 and George H.W. Bush in 1992. Each lost the presidency to a challenger primarily because of the economy. Current conditions are far less extreme, of course. In fact, by a number of metrics, the economy looks relatively solid. But there are also plenty of challenges brewing and so it’s debatable how much the economy will influence the results of Nov. 5 and which candidate will benefit the most.

It’s safe to say that the economy will be a factor in some degree, which highlights the fact that two more rounds of data releases await before voters select a new president. There are dozens of reports scheduled between now and Nov. 5, but from a political perspective the average voter will likely focus on just two: inflation and the labor market. Let’s zero in on proxies for each that will likely receive the most attention in political circles: the consumer price index (CPI) and the unemployment rate:

Sep. 6: Unemployment/Payrolls report for August
Sep. 11: CPI for August

Oct. 4: Unemployment/Payrolls for September
Oct. 10: CPI for September

A quick review of the jobless rate shows that the sharp post-pandemic slide has recently given way to a persistent, but so far mild rise for much of the year to date. The current 4.3% unemployment rate for July is low by historical standards, but the trend is no longer friendly. That implies that the next two updates could show a further rise in the jobless rate going into the election.

The trend for US inflation, by contrast, paints a more encouraging profile by posting an ongoing decline after the 2021-2022 spike. Headline CPI fell to a 2.9% year-over-year pace in July, the lowest in over three years. But while the rate of inflation has fallen sharply, price levels overall are still comparatively high after the recent inflation surge. As a result, the question for political analytics: Will the recent run of disinflation dominate voters’ perceptions on election day? Or will the previous inflation surge still overshadow the collective view on Nov. 5?  

Recency bias is a key factor in behavioral economics and so the next two rounds of economic releases could be a crucial influence in the election. Exactly how is the mystery. Voters, you might say, are still data dependent, as are the candidates.

---

How is recession risk evolving? Monitor the outlook with a subscription to:
The US Business Cycle Risk Report

---