Revisiting the Biden Economy Problem
In May, I wrote that President Biden had a problem: with a little over five months to go until Election Day, Americans were feeling gloomy about the economy, which traditionally would spell trouble for the party-in-power come Election Day. Moreover, polls at the time showed that not only were voters feeling sour, they also rated former President Trump more positively on this topic than they did Biden. Advantage Trump across the board.
However, in that May article, I also noted how, as tends to happen, the world would continue to spin, saying:
It is already Memorial Day, and yet, it is only Memorial Day. A lot can happen in the next 5+ months. Donald Trump will have to choose a running mate, for example, who may help him consolidate support or who could possibly turn off moderates. The party conventions will take place. Debates between Biden and Trump will happen, the first of which will take place on the surprisingly early date of June 27th, and the second of which will be in September.
And now here we are, approaching Labor Day, and the Presidential race looks of a heck of a lot different than it did in the spring. It is now Vice President Kamala Harris who is the favorite to win the White House in November, with both polling and Vegas oddsmakers giving her a narrow edge.
What happened? I will dig into the economic data and polling below, but it is simpler than all that. This is a change-year election. Voters from both parties and across the board seem to have an instinctive feel that they want something (and someone) different, a fresh face and new energy to hit the restart button and track a new direction on any one of a number of challenging issues facing this country and the world at large.
Change candidates typically do well when change is what a restless electorate is clamoring for. Think of Reagan in 1980, Clinton in 1992, Obama in 2008, and, yes, Trump himself in 2016. These were change-year elections, and the challenger candidate won all four times, oftentimes as the underdog at the beginning of the campaign but as a decisive victor by the end.
Despite former President Trump being a known commodity (and 78-years-old, to boot) he was seen prior to President Biden’s exit as the change candidate in 2024 because he was offering something different than the current administration. The exit of Biden and the rise of Kamala Harris has flipped the change question on its head, however. Kamala Harris is now the change candidate, while Trump is the aging, tired commodity (with a ton of baggage, to say the least).
If you watched any of the Democratic National Convention this week, you heard a lot about unity and joy for the future of our nation, which was a strikingly new tone in this campaign cycle. And at least for now, the polls are showing that Americans are buying what Kamala Harris is selling. People want to feel good about the country and its future and to move on from the tired debates, angst, and drama of the past, and that alone could be the winning message this year.
Does the Economy Still Matter?
But what about the economy, anyway? It could be argued that Harris is getting some help there, with inflation finally hitting that sub-3.0% level in July for the first time since March 2021. As I wrote about in May, however, people’s feelings about inflation are pretty sticky; it may still take awhile for people to feel that inflation is easing down. After all, it is still expensive to go to the grocery store let alone eat out, and certain key parts of the economy like the process of buying a first home (or any home) or finding an affordable rental unit remain frustrating and expensive to say the least. And yet, inflation is easing down to the point that the Federal Reserve is starting to clearly signal that its first long-awaited interest rate cut will take place in September.
The economy still polls as the top issue on voters’ minds. This comes even as other major topics including reproductive rights, the border, Israel-Palestine, Ukraine, and a myriad of other topics still weigh prominently in the collective mind of the electorate.
And yet, despite the shakeup in the race, Trump still has a lead in this category, carrying a margin of 9% over Harris on the question of who Americans believe is better equipped to handle the economy. This is almost exactly the same margin that he had over Biden. So it does not seem yet that Americans are willing to separate their views on Biden’s handling of the economy with Kamala Harris, which of course makes sense as they are part of the same administration.
Does that spell doom for the Harris campaign? Not necessarily. Voters do give Harris a big bump against Trump in areas where Biden struggled including which candidate has the health and mental acuity to handle the job (Trump led Biden by roughly 30 points on these questions, now Harris leads Trump by about the same margin, which is a monumental reversal). Harris also polls better than Trump on several topics that Biden was also ahead of Trump, including healthcare, protecting democracy, and abortion, although Trump leads on questions of immigration, and the Israel/Hamas War.
The only poll that actually matters is the one recorded by ballots on Election Day, of course, and although the economy is still the top issue on people’s minds, Harris’s improvements relative to Biden in other areas including the general sense that she is the change candidate, could be enough to boost her to victory.
As a final quick aside on this, Democrats have to be counting their lucky stars that the two campaigns agreed to a debate so early in the season. Without the June 27th debate, which showed in full how feeble a candidate President Biden had become, it is likely that Democrats would have continued to ride with him all the way through the fall. Without that inflection point, Harris may never have gotten her chance. Or if the first debate had been in September and Biden has performed similarly to how he did in June, it may have felt too late for Democrats to switch horses to Kamala Harris with just weeks to go before the election, and she would have also missed out on a summer’s worth of introducing herself to the voters and also have forgone the high publicity and millions of eyeballs and ears on this past week’s convention.
I’ll wrap up today the same way I concluded in May by saying that, yes, the world will keep spinning. There will be additional debates. Both of the candidates and their Vice President candidates will do and say both smart and silly things between now and Election Day. And then ground games of both campaign apparatuses plus those ubiquitous campaign ads will start to bombard us right after Labor Day. So for now, Harris has seized a slight edge, but we’ll see how things look on Election Night and, quite possibly, the days and weeks that follow as the votes are counted, challenged, re-counted, and certified. It is clear as we approach Labor Day Weekend, however, that the Biden Economy problem has evolved and been more than partially washed away. What President Trump faces now is a change problem.
Ben Sprague lives and works in Bangor, Maine as a Senior V.P./Commercial Lending Officer for Damariscotta-based First National Bank. He previously worked as an investment advisor and graduated from Harvard University in 2006. Ben can be reached at ben.sprague@thefirst.com or bsprague1@gmail.com.
Weekly Round-Up
Here are a few things that caught my eye this week that I think might interest you too:
Federal Reserve Chairman Jerome Powell was uncharacteristically clear in his signaling of pending interest rate cuts this past week. At a summit at Jackson Hole, he said, “The time has come for policy to adjust…the direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks…my confidence has grown that inflation is on a sustainable path back to 2%.” Look for the Fed’s key interest rates to drop by a quarter point in September and perhaps by another quarter point in December.
Construction bellwether company Home Depot reported its quarterly earnings earlier in the month, which included a sales decline of 3.6%. In the earnings call, CEO Ted Decker noted a decline in home construction projects and fewer big ticket purchases.
Fannie Mae, the National Association of Realtors, and the Mortgage Bankers Association all predict the average 30-year fixed rate mortgage interest rate will average 6.5-6.9% between now and the end of the year. Rates are hovering around 6.5% right now, so even as the Fed is expected to cut rates in September, that may already be baked into rates offered by banks and mortgage brokers. Read more via Forbes.
Fun fact of the week: the second longest river in the world, the Amazon, does not have a single bridge that crosses over it. This is due to wetlands and rainforests along its 4,300 mile path that make building impossible, not to mention the impracticality of construction bridges in such sparsely populated areas. Still, it doesn’t really seem true that there is not a single bridge across the Amazon River, but I’ve researched it out, and it appears true! Read more here.
Have a great week, everybody!