The state of the economy in 2020 will more than likely determine the winner of the presidential election.
This is because when the economy is good, incumbent presidents are usually elected – but when the economy is bad, they rarely are. And an important data point in the debate came out Friday with the release of the monthly jobs report…
The report usually comes out on the first Friday of every month. Last week, it showed that the economy added 225,000 jobs in January. At the same time, nearly half a million Americans felt encouraged by their job prospects and resumed looking for jobs.
Most found jobs, but those who didn’t pushed the unemployment rate to 3.6% from December’s half-century low of 3.5%.
These numbers give backing to the incumbent president’s assertion that the economy is doing fabulously well under his watch. It makes it more difficult for the Democratic candidates to say that the middle class is being left behind by the last 11 years of economic growth.
Furthermore, the “math” of the election calendar is also working in favor of the incumbent president.
Even if a recession started today – which is highly unlikely given recent economic strength – we would not know for two quarters whether the economy was in a recession or not (based on the definition of a recession).
This would mean that the earliest any economist could crow about the economy being in recession would be mid-August – perhaps even the end of September.
The Democratic candidate who is eventually nominated by their party will have a daunting task…
Jason Furman, a top economic advisor to President Obama, did note that “Democratic primary voters are very open to messages about the economy doing badly.”
He added, however, “I don’t know that that would be consistent for the electorate as a whole.”
The Pew Research Center released a poll Friday that coincided with the jobs report. Eighty-one percent of Republicans or Republican-leaning independents believe the economy is excellent or good.
Only 39% of Democrats or those leaning Democrat say that. But the public overall, Pew noted, has a more positive view of the economy now than it has at any point of the past 20 years.
Fifty-seven percent think the economy is excellent or good, up from 32% in 2016.
One of the economy’s key weaknesses since the Great Recession has been that even as unemployment fell from a peak of about 10% in 2009, millions of Americans were discouraged by their job prospects and stopped looking for work.
They went back to school or stayed home and cared for relatives.
But that trend has almost completely reversed itself since 2016.
The proportion of Americans in their prime working years – ages 25 to 54 – who either have a job or are looking for one has reached its highest point since September 2008, when the Great Recession intensified.
Larry Kudlow, the top economic advisor at the White House, says, “We have seen Hispanics, African Americans, Asians, young people, women – all… are either at their all-time unemployment lows or very nearly so.”
The bottom line: If the economy continues on its current arc, the sitting president will be a “tough out,” as the kids say today in regard to sports playoff brackets.
Almost certainly, though, the markets will have volatility this year as the presidential race inevitably tightens. When that happens, be sure to stick to your long-term goals whatever gyrations the market is going through.
Stick to your target asset allocation, and especially don’t sell out of bonds!