Polling data from RealClear Polling, which takes an average from multiple polls across the US (and which is available to view through LSEG’s Datastream platform), shows that Trump is leading the race to win the election. The gap between Trump and Biden widened at the beginning of the year, but shifted towards a closer tie in April (and is now widening again) — suggesting a tight race. This leaves the question of whether economics swing things in Biden’s favour…
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A paper by Kahane (2009) has attempted to model the effects of macroeconomic variables on voting behaviour. Applying the results of Kahane[1] to the 2024 presidential election, the macro-economic drivers of income growth, unemployment and gasoline prices would add an expected 1.8 percentage points to the Democratic Party’s share of the vote, which is perhaps not enough to overturn Biden’s deficit in current opinion polls.
The chart below breaks this down further, showing each economic driver’s percentage point contribution to the expected share of votes for the incumbent party. For the 2024 election, the increase in per-capita disposable income is expected to contribute positively (2 percentage points) to the Democratic Party’s share of the vote, whereas the increase in the price of gasoline is predicted to provide a slightly negative contribution. According to the results of Kahane’s work, an increase in the unemployment rate between the election year and two years prior leads to a decrease in votes for the incumbent party. Thus, although the current unemployment rate is low, the slight increase of 0.2 percentage points from April 2022 to April 2024 is expected to have a very small negative impact on the share of votes for the Democratic Party.
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Looking further into the economic factors contributing positively to Biden’s voting outlook, real disposable income recovered in 2023 and 2024 (albeit at a lower growth rate in 2024), after a sharp decline in 2021 and 2022 due to tight monetary policy and less fiscal stimulus than during the COVID-19 pandemic, with the final round of stimulus checks taking place in March 2021. Although monetary policy remains tight, low unemployment has contributed to real disposable income growth.
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The US labour market has held up remarkably well, with the rate of unemployment at a historically low level (3.8%), below the UK’s unemployment rate (4.4%), the euro area’s unemployment rate (6.5%) and probably below the sustainable long-run level of employment. Applying the results from Kahane (2009) provides a slightly negative contribution of the unemployment rate to the Democratic Party’s share of the vote, this is simply due to the unemployment rate increasing slightly from a very low level. The rate of unemployment has been below 4% for two years under the Biden administration, the longest period in over 50 years.
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Voters are faced with rising prices and a cost-of-living crisis post-pandemic, which is negatively affecting Biden’s outlook for re-election. Although the annual inflation rate is falling, from a peak of 9% in June 2022 to 3.4% in April, US voters have been hit by above-target inflation for three years.
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However, consumers tend to take note of the price of goods that they purchase most regularly. Gasoline prices, which fit into that category, have increased by 17% since December 2023. According to Kahane’s model, the increase in the price of gasoline should lead to a slight decrease in Biden’s expected share of the vote.
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The US economy has shown strong growth compared to the UK and euro area, and the US is the only economy out of the three to escape a technical recession in 2023 and (so far) 2024. Despite showing greater resilience than other economies under the Biden administration, a Reuters/Ipsos poll reports that 41% of respondents think Trump has a better approach to the economy, compared to 34% for Biden.
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Overall, economic fundamentals based on the three variables above would add an expected 1.8 percentage points to the Democratic Party’s share of the vote. However, out of the seven elections since 1950 that have had worse economic fundamentals than the US economy is currently facing, the incumbent has only won and returned to office twice. On this basis, Trump is more likely to win the election, which remains Fathom’s central expectation. It is also worth noting that out of the 11 elections with better economic fundamentals than the US economy is faced with currently, the incumbent party won the election 55% of the time, meaning that there are other important factors influencing the decision making of voters and even a further improvement in the fundamentals might not be enough to swing the vote in Biden’s favour.
Looking at the six battleground states, which have the potential to swing the election, Trump leads the race in five of them, but only by a small margin. Trump has the biggest lead in Nevada and Arizona, where there is a 4.6 percentage point gap between him and Biden, followed by Georgia (4.1 percentage points). However, the race is tighter in Wisconsin — where polls are placing the two at a tie, with only a 0.1 percentage point difference between the two candidates — Michigan (1 percentage point), and Pennsylvania (2.1 percentage points). If Biden were to win in those three states, as well as the other states he won in 2020, that is enough for him to win the election. So, although Trump is the current leader nationally among the polls, he is does not lead by a large margin. The swing states will, as usual, be crucial to the outcome of this election.
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In conclusion, economic fundamentals contribute positively to Biden’s expected share of the vote, with disposable income and economic growth showing a high degree of resilience in the face of monetary tightening. However, inflation is pulling in the opposite direction, with voters leaning towards Trump when asked who has the better approach to the economy. The election is far from decided yet, but Trump is leading on a national level. Indeed, to win the election, the swing states of Wisconsin, Michigan and Pennsylvania will be crucial. Macroeconomic fundamentals are improving, which could be a swing factor in these states (although there are also many other factors impacting the decisions of the voters).
The views expressed in this article are the views of the author, not necessarily those of LSEG.
[1] https://link.springer.com/article/10.1007/s11127-009-9397-z
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