Inflation and job growth could determine the next president.
It is not a question of whether the country’s economic performance influences the vote, but of knowing which sector of the economy has the most say.
Personal finance is very personal. The parts of the business world that influence your checkbook may be unimportant to others.
My trusty spreadsheet examined seven economic criteria – cost of living, pace of hiring, gross domestic product, mortgage rates, unemployment, stock market and wages – looking for clues about who will control the White House next year .
The third-quarter performance of these measures was compared to that of four years earlier for the last 12 presidential election years, from 2020 to 1976. The rankings for these periods were a modest calculation of the question “are you better better than four years ago.
To create a historical scale, the 12 presidential terms were divided into thirds for the seven benchmarks. The top four performances were seen as economic signals that the ruling party would remain in power. The last four results were considered predictions of change. The middle third was an “undecided” opinion.
Have these calls been proven true? Here’s what I learned, ordered by relative accuracy.
Best Bets
The most insightful indicators were inflation and job growth, with their top and bottom scores correctly indicating White House control with 88 percent accuracy.
For starters, the cost of living is always a hot topic. And in recent years, we’ve been reminded how anxious Americans get when inflation soars. When trips to the store become a strain on household budgets, voters act accordingly.
But ample employment opportunities are also a vital part of economic well-being. A regular salary solves the financial problems of many families.
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So, if bosses hire quickly, voters seem happy to keep the White House in the same hands. But they will strengthen their leadership when layoffs become too frequent.
The other best economic markers of presidential prescience were GDP and mortgage rates, with 75% accuracy.
Today, GDP is a broad and relatively difficult to explain measure of business output growth. Yet voters like it one way or another, because they likely value levels of business activity without easily quantifying them.
This statistical vagueness contrasts sharply with the cost of a property loan. Americans like to borrow, and financing costs are a closely watched factor in their living and voting habits.
Next came unemployment, which was accurate in 63% of its 12-year predictions.
On the one hand, one might think that the unemployment rate would have an electoral effect. On the other hand, most people keep their jobs even during the darkest economic downturns.
Unless you or someone close to you is unemployed, the unemployment factor may not change the vote.
Bad tipsters
The stock market has only been right about the presidency half the time in the last dozen elections.
Many Americans have insignificant money on Wall Street and do not follow its developments closely. Disinterest or discomfort may explain why it is a poor predictor of election results.
Finally, there are the salary increases. Their moves were correct regarding elections only 25% of the time since 1976. Now, why wouldn’t voters care about the size of the typical wage increase?
- INFLATION TRENDS: What’s new? What is cheaper? What’s next? CLICK HERE!
First, remember that rising wages are often part of an inflationary problem. At that time, people focused more on the rising cost of living than on a higher salary.
Second, I bet most Americans think they deserve their pay raise, not that it’s the product of presidential policy.
Conclusion
Just to be safe, I created a simple economic performance index for each of these last 12 presidential terms by averaging the rankings for the seven criteria.
This composite index had a surprising accuracy of 88%. At the very least, we find that economic fluctuations often coincide with political outcomes.
White House incumbents win in good times – and get kicked out in bad times.
Looking forward
Let me reward you for getting this far by taking a look at what the economic statistics from 2020 to 2024 suggest. That comes with a strong caveat: I’m not trying to change anyone’s vote.
The economic record of Joe Biden’s presidency is complicated. And the fact that Vice President Kamala Harris occupies the head of the Democratic group makes the link even more delicate. Still, consider what was discovered when I rearranged the spreadsheet calculations to include the last four years.
Based on inflation performance alone, Biden’s party is leaving the White House. This is a “loser” signal that has been 100% correct since 1976.
However, thanks to job growth, Democrats retain the presidency. This is an equally correct “winning” signal.
Remember, these are the two “best” indicators. One of them will be wrong this time.
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Let me note that mortgage rates also suggest a loss. Still, GDP, unemployment and the stock market suggest victory – as does my composite of seven benchmarks.
Like I said, it’s complicated.
Jonathan Lansner is the Southern California News Group’s business columnist. He can be contacted at jlansner@scng.com
