The economic boom on the eve of the US election cannot hide the weakness of public confidence. Can Harris use the momentum to overtake Trump?

The Zhitong Finance App learned that as the US election gets closer, the US economy is showing a rare boom on the eve of any presidential election in modern history. The unemployment rate has fallen to its lowest point in more than 20 years, gasoline prices are relatively moderate, and inflation has improved. In the context of US President Joe Biden's announcement that he is not seeking re-election, although Vice President Kamala Harris may not be able to fully enjoy all the political dividends of her term, the recent strong economic performance has certainly added a boost to her, while also weakening one of the core campaign arguments against Republican candidate Donald Trump.

However, for Harris, the economic recovery may have come a little later. The improvement in the economy will take time to be fully perceived and digested by the public. After experiencing a period of economic fluctuation, it often takes a while for people to notice an improvement in their living conditions. This may explain why Harris still lags behind Trump in most polls on economic issues, because consumer confidence has not fully recovered, and they still feel that their financial situation has not improved significantly.

unemployment rate

In terms of the labor market, it continues to be a strong driver of the economy. The unemployment rate remains near its lowest level in nearly half a century. Despite a slowdown in recruitment, layoffs are still under control, and employers are reluctant to fire employees easily. As wages continue to grow faster than inflation, employed consumers are forming a virtuous cycle through consumption, which in turn guarantees employment opportunities for others.

Figure 1

Notably, although the unemployment rate was low in previous elections (with the exception of 2000), this did not necessarily benefit Harris. In the 2000 election, Democratic President Bill Clinton's Vice President Al Gore lost to George W. Bush, in one of the fiercest elections in history.

inflation

In terms of inflation, the consumer price index has now returned to a reasonable range after reaching its peak in 40 years at the beginning of Biden's term. Despite the rapid rise in prices between 2021 and 2022, the current inflation rate is still lower than in the 1980s and 1990s, although this may come as a surprise to many voters.

Figure 2

The recent slowdown in price increases is certainly good news, but the cumulative rise in prices over the past four years has still had an impact on people's bank accounts. Adapting to this change takes time: Research by economists at Stanford University suggests it may take up to five years for people to psychologically accept higher price levels.

Gasoline prices

As one of the most intuitive economic indicators in voters' daily lives, fluctuations in gasoline prices are often closely linked to consumer sentiment. Political science research shows that voters are extremely sensitive to gasoline prices: a 2016 study showed that for every 10 cent increase in gasoline prices when other economic factors and major news are controlled, the president's approval rating falls by 0.60%. Therefore, during the election year, any fluctuation in the oil market could pose a serious threat to the ruling party.

Figure 3

The fall in the inflation rate is partly due to rising oil prices and a surge in US exports. However, geopolitical risks — particularly a possible war in the Middle East — are still likely to curb oil supply and push up the price of Brent crude oil. But for now, even without considering inflation, oil prices are lower than they were before the 2012 election.

Consumer confidence

Despite generally positive economic indicators, why does Harris lag behind Trump in most polls about who can better handle economic issues? The reason is that consumers are still being severely impacted by post-pandemic inflation. Consumer confidence will take time to recover, as demonstrated after the 2008 financial crisis. The impact of the pandemic and the subsequent double impact of inflation and the Fed's interest rate hike have profoundly affected consumers' feelings about the economy, and the economic rebound is yet to be completed.

Figure 4

Family wealth

The wealth of American households mainly depends on two major factors: real estate and the stock market. In recent years, large market fluctuations have largely contributed to the growth of household wealth, but memories of the market downturn from 2022 to 2023 may still leave many families with lingering feelings.

Figure 5

However, average household wealth can also be misleading: although around 65% of Americans own their own homes, overall wealth is highly concentrated among the richest 1%. In 2022, about 10% of American households held about 75% of their wealth. As a result, although wealth fluctuations affect a wider range of people, their impact on the richest people is most significant, and the impact on overall voter sentiment is likely to be relatively limited.

Nevertheless, after Trump left office, these voters did feel more affluent, partly because the government spent money to boost the economy led to an unreasonable rise in stock prices. Biden, on the other hand, had to deal with the consequences of these expenses. Harris, on the other hand, faces the challenge of how to make the most of this complex economic situation in the election.