(Bloomberg Opinion) -- The expanding economy has been President Donald Trump’s strongest argument for re-election. There are signs, however, that the economy may be headed for a repeat of the slowdown that preceded the 2016 election — and which almost certainly contributed to the Democrats’ loss of the White House.
Prediction models that measure the eagerness of voters for change based on economic conditions and other factors were one of the few forecasting tools that consistently anticipated a Trump victory. Those models are based on the year-over-year growth in gross domestic product and the popularity of the incumbent rather than head-to-head polling.
Crucially, it’s not necessary for the economy to fall into a full-blown recession to hurt Trump’s chances. The quasi-recession of 2016 was mild enough that most Americans barely noticed it, but it was strong enough to give Trump the edge in those forecasting models.
Even more ominous for Trump, the latest quarterly figure for annual U.S. GDP growth — 3.2% — will be hard to match next year. In the first quarter of 2015, year-over-year GDP growth was a blistering 3.8%. A year later it was 1.6%, and it fell even lower before the election.
It’s too early to tell whether GDP has peaked, but indicators show that the U.S. economy is tracking close to its performance in the run-up to the 2016 election.
The unemployment rate provides the clearest picture of how badly timed the 2016 slowdown was for Clinton. Year-over-year unemployment was falling rapidly in early 2015. Then it stalled. As the election approached, many workers asked themselves: “Is the job market better now than it was a year ago?” The answer was no.
At the time, many economists thought that the job market just couldn’t get any better. They were wrong, of course. Now many are saying the same thing, and while it’s too soon to say whether they’re wrong again, there is undoubtedly a limit to how far the unemployment rate can fall. If it had fallen as fast in Trump’s first term as it did during President Barack Obama’s second, the unemployment rate would stand at 1.8% right now.
That’s half of where it is — and far below even the most optimistic assessment of the U.S. job market’s potential.
A slightly better measure of economic performance is job growth, which outpaced employment gains because workers who dropped out of the labor force after the 2008 recession are now coming back.
Year-over-year job growth rose steadily through 2014 and into 2015, but peaked 21 months before the 2016 election, roughly the same distance between now and Election Day 2020. There will need to be a considerable pickup in hiring in order to avoid a decline in year-over-year employment growth in the months ahead.
The news isn’t all bad for Trump. New orders for capital equipment, a good signal of where businesses think the economy is headed, are doing well. But these numbers may not hold up. A good bit of private investment in the U.S. is related to the shale boom, and the recent decline in oil prices and the strengthening dollar make those markets shaky.
The economy hurt Democrats in 2016. The conventional wisdom is that it’s a strength for Trump. Prediction models that incorporate the economy, however, look at a simple question: How much better are things now than they were a year ago? On that score, Trump isn’t doing that much better than the Democrats were in the run-up to 2016.
To contact the editor responsible for this story: Michael Newman at mnewman43@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Karl W. Smith is a former assistant professor of economics at the University of North Carolina's school of government and founder of the blog Modeled Behavior.
©2019 Bloomberg L.P.