President Trump’s fear of Joe Biden seems well-founded, especially since Biden is now favored to move into the White House in 2021, by some estimates.
“With Trump facing an unlikely reelection, this means it is most likely at this point Joe Biden will win the general election in November,” Washington, DC research firm Sandhill Strategies predicted in a March 16 analysis. The coronavirus outbreak has triggered a bear market in stocks and a likely recession, which is a death sentence for presidential reelection hopes. “No U.S. President has won reelection in recent history after a period of economic downturn,” Sandhill points out.
Biden hasn’t officially clinched the Democratic presidential nomination yet. But that seems inevitable, barring an unforeseen turn in the race. He handily leads Bernie Sanders in the delegate count, and Sanders himself seems to be tacitly acknowledging his inevitable dropout.
Recessions are funny things, because economists only declare them months after they start. And the formal definition of a recession is two consecutive quarters of shrinking GDP, which hasn’t happened yet. Real GDP, adjusted for inflation, grew 2.3% in the last quarter of 2019, and it’s running around 1.6% in the current quarter. Treasury Secretary Steven Mnuchin said “I don’t think so” when asked on March 15 if the U.S. economy is in a recession.
But the coronavirus is causing an abrupt economic shock that some economists think is more unnerving than the 2008 financial crash, which caused the worst downturn since the Great Depression. Widespread closures and cancelations seem certain to lead to losses and layoffs, already reflected in a stock market down 28% in less than a month. A manufacturing survey hit its lowest level since 2009 on March 16, a sign of the carnage to come. “This feels much worse than 2008,” Harvard economist Jason Furman, who worked in the Obama White House, told Vox recently.
Since the coronavirus crisis is a single-issue shock—due entirely to a known unknown—it’s possible markets and the economy will bounce back sharply once the crisis is over. But nobody knows when it will end, and the economic damage will compound as businesses lose revenue and struggle to pay rent and other bills. Some will default on loans and go under. The recovery will come too late for some.
Congress is poised to pass one stimulus bill this week, and possibly a larger one soon. If structured correctly, it will help. Still, for all its durability, the U.S. economy is heavily dependent on consumer spending, which accounts for roughly 70% of all activity. And that spending is plunging as people stay home and retailers close.
Recessions and elections
President Trump has earned poor marks for his early handling of the outbreak, when he downplayed the epidemic and said, “we have it totally under control.” But Trump’s performance may not matter, since recessions create reelection losers, period. George H.W. Bush had an 85% approval rating in 1991, after the resounding U.S. victory in the Persian Gulf War. Yet he lost reelection in 1992 because of a relatively short and mild recession that ended before the election but produced a “jobless recovery” and many months of economic anxiety.
With more than 7 months till the election, surprises could still tilt the election back in Trump’s favor. Betting site Smarkets shows a surge in Biden’s odds of becoming president during the last two weeks while Trump has slumped. Yet the site has the two candidates essentially tied, with each man about 45% likely to win.
Sandhill Strategies expects other realignments in the November elections. If Biden does well, that would raise the odds of Democrats taking control of the Senate. Even Mitch McConnell, the wily Senate majority leader, could lose reelection. But Sandhill thinks Democrats could also lose control of the House as voters go after incumbents en masse. That would violate the usual pattern of down-ballot candidates riding the “coattails” of the presidential winner, since many voters simply vote for all candidates in their chosen party. Yet that might be the least shocking thing in a year of momentous surprises.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. Confidential tip line: email@example.com. Encrypted communication available. Click here to get Rick’s stories by email.