Voters go to the polls on Tuesday in the US midterm elections, where a third of seats in the Senate and all seats in the House of Representatives are up for grabs. The Democrats look likely to win control of the House, while the Senate will probably get a little bit ‘redder’. The president’s legislative agenda would be easier to pursue if Republicans could keep control of both chambers, but, with little in the way of new fiscal stimulus in the pipeline, we do not anticipate a significant change in the economic outlook if they fail to keep the House. A Democrat-controlled House could initiate impeachment proceedings against the president, but for those to stick, and the president be removed from office, two-thirds of Senators would need to back such a motion, which seems unlikely for now, regardless of next week’s election outcome. And in any case, previous research we have done suggests that a US constitutional crisis would have a relatively small short-term impact on the economy.
We still anticipate strong US GDP growth in 2018 and 2019, although we anticipate a recession in 2020. This is supported by recent economic data releases, including the advance estimate of Q3 GDP, which showed that the economy expanded at an annualised pace of 3.5% last quarter, and Friday’s nonfarm payrolls report for October, which showed 250,000 net new payrolls were added, and that annual wage growth jumped from 2.8% to 3.1%.
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Since 1910, on average, there has been a 33- and 4-seat swing away from the president’s party in the House and Senate respectively during midterm elections. A ‘normal’ 33-seat swing would give the Democrats control of the House and most forecasters, including ourselves, expect them to achieve this. A 4-seat swing to the Democrats would give them control of the Senate, but this looks unlikely to happen since 25 of the 35 seats up for grabs are currently held by Democrats, some of them in traditionally ‘red’ states. With respect to trade policy, we understand that many laws, including Section 301 of the Trade Act of 1974, give the president powers to invoke tariffs, without the approval of Congress.
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