US election: Still the economy, stupid?

Posted on September 16, 2016

©FT montage; AFP/Getty Images

Protest votes gave Republican candidacy to Donald Trump and led to Bernie Sanders’ powerful showing in Democratic race

It was the news that the Democrats have long been yearning for. Within two minutes of starting a stump speech in Las Vegas for his pneumonia-stricken wife on Wednesday, Bill Clinton was brandishing evidence of a resurgence of middle-class incomes. “The economy works better when Democrats are there,” the former president told an audience at a community college. “We’ve got lots of evidence of that.”

The Census Bureau data were indeed striking. Median household income adjusted for inflation — a proxy for middle-class incomes — leapt more than 5 per cent in 2015. It was the biggest jump since Census Bureau records began half a century ago.

    For Democrats, the income rise promises to fill a gaping hole in the US recovery story that has haunted the White House ever since Barack Obama took office in 2009. Businesses have added more than 15m jobs since 2010, house prices have bounced back and the stock market is near record highs. But incomes have remained moribund and headlines have been dominated by the decline of the American middle class.

    This miserable narrative is believed to be a key driver behind the populist discontent that gave rise to Donald Trump, the Republican presidential candidate, and Bernie Sanders, Hillary Clinton’s unsuccessful challenger for the Democratic nomination.

    Jared Bernstein, former economic adviser to vice-president Joe Biden who is now a senior fellow at the Center on Budget and Policy Priorities, says the resurgent incomes data have genuine political salience for Mrs Clinton. “If ever there was an economic report that was saying ‘don’t change horses’ it was this,” he says.

    But the upbeat economic report did little to improve a bad week for Mrs Clinton. With the former first lady taking time off to recuperate, Mr Trump was able to keep the spotlight trained on himself. He pounded Mrs Clinton for her characterisation of his supporters as “deplorables” and claimed to have plans that would generate 25m new jobs. By the end of the week, polls showed a tightening race, with Mr Trump edging ahead in key states such as Florida and Ohio.

    The apparent failure of the healthy rise in US household incomes to lift the mood of the electorate has led some commentators to question whether the 1992 Bill Clinton campaign mantra “it’s the economy, stupid” still holds.

    CHICAGO, IL - APRIL 14: Demonstrators demanding an increase in the minimum wage march in the streets on April 14, 2016 in Chicago, Illinois. The demonstrators marched to and protested in front of several locations, part of a day-long effort to draw attention to low-wage jobs. The demonstration was one of about 300 scheduled to take place nationwide today. (Photo by Scott Olson/Getty Images)©Getty

    A protest in Chicago in April calling for a $15 minimum wage was one of 300 across the country

    While Mr Trump claims his business background qualifies him to turn around a wrecked economy, his message is not a reflection only of economic discontent. He has also tapped into anxiety among some white voters about demographic change and antipathy towards immigration, fears that the country is somehow culturally adrift and a rejection of the political elites — among them the Clintons themselves.

    And a deeper dig into the data shows a far more mixed picture of the US economy. Even after the jump in 2015, real median household income has yet to return to the levels of the year before the recession, and remains 2.4 per cent below the 1999 peak. For men — a key support group for Mr Trump — real median earnings are lower than they were the early 1970s.

    Mike Perry, who runs a small branding company with his wife in Cincinnati, Ohio, called Incite Visual Communications, puts little stock in the data. His profits and personal earnings have fallen this year compared with 2015.

    Trump support surges in Pennsylvania towns

    Town of Hazleton, Pennsylvania. Storefronts in Spanish

    Scant evidence of Clinton campaign in traditional stronghold

    “What we have had is not a recovery — it is pockets of some things getting better and other things getting worse,” the Trump supporter said. Mrs Clinton, he argues, would be a “disaster for the wellbeing of this country” because she does not have the business background that Mr Trump does.

    The robust income gains of 2015 are also likely to prove unsustainable, given feeble potential gross domestic product growth. With productivity sliding for three quarters in a row, the US lacks the economic vigour to sustain rapidly rising earnings over a long period.

    That worries Jan Rivkin, a professor at Harvard Business School and co-author of a report on America’s declining competitiveness that was released this week.

    “My fear is we could overreact and take it as a sign that we are just fine,” he said of the new income data. “I don’t see what has changed structurally that will sustain long run improvements in real median household income.”

    The recovery is also proving uneven. America’s problem with yawning inequality remains unaddressed, with the bottom 95 per cent of households still bringing in incomes below those of 2007, according to analysis from the Economic Policy Institute.

    Large tracts of America are being left out of a bounce that has been concentrated in well-connected, vibrant cities. Rural incomes fell by 2 per cent in 2015, even as real incomes rose more than 7 per cent in major cities. Only 11 states and the District of Columbia have median household incomes higher in 2015 than in 2007.

    Steve Glickman, co-founder of the Economic Innovation Group, a think-tank that is examining regional inequality, said US economic data have been stronger than in many other western countries since the recovery started, but that does not necessarily influence individuals’ perceptions. “It is indisputable that people still feel quite a lot of angst about the economy; they are not out of touch with reality,” he says. “Your perspective is not a reflection of the national numbers, it is a reflection of the jobs in your neighbourhood.”

    The experience of Kevin Reedy, who owns a construction company in West Virginia, bears that out. He says he has not been able to increase the pay of his eight employees for half a decade, though the flow of projects has improved recently. “We are not making any great money,” he says. “We are keeping everything at a happy medium and trying to weather the storm.”

    But to Democrats, the income data came as vindication of a belief that the economic achievements of the Obama years are being understated. Mr Obama kicked 2015 off by declaring that the “shadow of the crisis has passed” following what he called a breakthrough year on the economy. To his visible frustration, political dialogue has continued to dwell on the economic shortcomings.

    Polling by Suffolk University Boston this month showed a bigger share of voters believe the economy is stagnating or in a recession — or even worse — than those who think the US is in a recovery.

    Closer race than expected

    Mr Obama’s economic advisers pounced on the Census Bureau figures to try and reverse that sentiment. The Census data were evidence of “remarkable progress” following the recession, they said. Growth was recorded in every income percentile tracked by the bureau, while 3.5m people were lifted out of poverty. Encouragingly, the strongest income growth was towards the bottom of the earnings scale, not at the top, driven by higher entry-level wages at some companies and a tightening jobs market.

    Some indicators suggest Americans are beginning to sense economic improvements. Mr Obama’s approval ratings have been surging, for example, which in itself is an indication of greater economic optimism. Consumer sentiment indicators are strong.

    Still, that does not guarantee Mrs Clinton the hearts of undecided voters in what is shaping up to be a closer battle than expected. Support for Mr Trump cannot be neatly linked to economic hardship, according to research from Gallup in July, underscoring the complex drivers behind the election.

    GORE LIEBERMAN...Vice President Al Gore, right, delivers a statement in Nashville, Tenn., Wednesday, Nov. 8, 2000, on the current vote recount in Florida as his running mate Sen. Joseph Lieberman listens. (AP Photo/J. Scott Applewhite)©AP

    Al Gore’s loss in the 2000 election came at a time of high growth but after eight years of Democrat rule

    Norm Ornstein, a resident scholar at the American Enterprise Institute, notes the large number of those who say the country is on the wrong track, which may reflect questions not only of opportunities that exist in society, but a sense the political system is not working.

    Alongside that sits the longstanding project of many congressional Republicans to delegitimise not only Mr Obama but Washington governance in general. This is something Mr Trump has taken to an even higher level, as he pushes the argument that political figures are corrupt and incompetent.

    The result, Mr Ornstein says, is that it is hard for voters to feel optimistic. “Many people believe there is no way these bozos can solve these problems.”

    The upshot is many voters are demanding a change of political scene — something parties always face following two consecutive terms in the executive branch, but which applies especially to Mrs Clinton given she has already lived in the White House.

    Mrs Clinton still holds the stronger hand, though, with a narrow lead in national polling averages. But the example of Al Gore, the former Democratic presidential candidate, is illustrative.

    He narrowly lost to George W Bush in 2000 despite running at the tail-end of a stellar period of growth and rising wages, and in the wake of a fellow Democrat who left office with strong approval ratings — namely Mr Clinton. Some analysts argue he did too little to capitalise on the former president’s standing with the electorate — indeed, in some ways he ran away from it.

    Mrs Clinton is not making that mistake, holding firmly on to the coattails of Mr Obama, who was stumping for her this week in Philadelphia. But as Mr Gore learnt in 2000, economic tailwinds are no guarantee of electoral success.

    With reporting by Courtney Weaver in Las Vegas

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