Is the U.S. economy any good right now? This seemingly straightforward question is not such an easy one to answer. Yes, unemployment is low, post-COVID inflation’s worst days are well behind us, and the Federal Reserve is now predicting a solid 2 percent growth rate this year. Then again, stubbornly high prices for food and homes continue to bedevil Americans looking for stability. Joe Biden has managed to avoid what looked like an all-but-certain recession so far, but whether voters will reward him for that in November is far less clear.
Mark Zandi is the influential chief economist at Moody’s Analytics, where he and his team oversee a kind of war room for financial and economic data, tracking the way Americans feel about the economy. In January, Zandi put out a report calling the race for Biden — at least, as long as the economy doesn’t tank the rest of the year. But since then, inflation, which had appeared to be on a steeply downward trajectory, has once again proven stickier than anticipated. I recently spoke with Zandi about the gap between favorable economic indicators and the reality voters live in, and how it will shape the presidential election.
At the top of your January report, you say that the election hinges on the strength of the economy between now and Election Day. Is this election more dependent on the economy than previous ones? No. The economy is always important. There might be some exceptions when we get pandemics and wars, but for the most part, I think the economy is topic number one for most people. Right now, voters are looking at the economy to their own financial position, and what they see determines in large part how they vote.
As a general matter, who is more motivated to vote? People who are feeling well-off, or those who feel like they’re being left behind? In general, people who are dissatisfied, uncomfortable with their financial position, are more likely to vote against the incumbent party. If things aren’t going well for them financially, if they don’t have a job or their purchasing power has been undermined or they’re having trouble making ends meet or making the medical payment, they’re going to blame whoever is at the till, whoever is ostensibly running the economy.
In your analysis from January, you said that, short of a recession, you would expect Biden to win. But we’ve seen that a lot of people have been thinking that we’re in a recession, even though we’re not. You’re right — perceptions are ultimately the critical determining factor. The economy, based on the numbers, could be as good as it gets, but it doesn’t really matter unless people believe it. It’s really how people feel about their personal financial situation, and that’s a different kettle of fish. That’s why I think this election is going to be as close as it is, because if it was just based on the numbers, Biden should win hands down, but he’s not going to.
The culprit here is inflation. People really have gotten unnerved by the higher prices they’ve had to pay, mostly for staples. Food is at the top of the list, and then rent, the cost of housing. Those are the things that really matter a lot. Gas prices would matter, also, if they started to rise. If they start pushing higher and go up another half a buck, a buck, then that’s also going to be on the list.
When you’re analyzing inflation and wages, do you look at that on a national level, or state by state? State by state. The modeling work we do is based on the Electoral College, so we’re remodeling at a state level. So, one of the key variables is real household income — it’s real after inflation.
In swing states like Nevada, Pennsylvania, North Carolina, Georgia — what does real income look like? Are people making more than the inflation rate? They are. Over the past year, real household incomes have been steadily rising. Wage gains are stronger than the rate of inflation. Of course, real wages fell in 2022 and early 2023, so much of this recent increase over the past year is basically catching up.
We’ve got another few months to go. If these trend lines continue, and we expect they will, perceptions will be close enough to reality to push Biden over the top in those four of the five key swing states that are within a percentage point.
The state that matters the most, by far, is Pennsylvania. That’s key. And the Pennsylvania economy is okay. It’s not, you know, Georgia-like. It’s not Arizona. It’s not on par with those economies. But it’s okay. That makes the election feel even closer because it’s just okay. You know, it’s not rip-roaring.
Do you mean that Georgia, Nevada, and Arizona’s economies are doing very well? Yeah. Of the five swing states, four of them are doing well. It’s Pennsylvania that’s in the middle of the pack.
What is it about Pennsylvania that is holding it back compared to other states? It’s partly demographic. Pennsylvania is actually an older state, and is a bit of a casualty from a remote-work dynamic. Philadelphia and Pittsburgh have made significant strides in doing well, by Pittsburgh and Philly standards.
One thing that limits the outflows of people, interestingly enough, is that the state does not tax social-security benefits. Retirees, generally lower-income, stick around in the state to avoid paying sales tax.
So is there a catch when it comes to inflation and electoral politics — where if people are feeling good about the economy, then they are less motivated to vote, so the real goal is just to tamp down on the people who would be voting against you, rather than pumping up the numbers of people who want to vote for you? There’s some truth to that. It’s really about those independent voters that are kind of on the margin in a few swing states, and really in a few swing counties. That’s one of the things I kind of came away with. We basically elect a president based on six, ten counties across the country. It’s really about turnout in those counties. Will the Democrats in Philadelphia turn out? The Republicans in Pinellas County [in Florida]? Or the Democrats in DeKalb County and Atlanta? That’s really what matters in terms of the election, how motivated they are.
Have you drilled down on those counties, to see how well they’re doing economically? Yeah, again, those are the big counties generally in those states, and they tend to mirror the state. They’re doing okay. Philadelphia and Pittsburgh are doing reasonably well, better than the rest of the state, and that may favor Biden as well.
Take Philadelphia. I live in the Philadelphia region, in Chester County. Philadelphia is actually doing well because it’s got a lot of eds and meds — a lot of universities and hospitals. Those industries are doing very well, and that’s driving a lot of economic activity. And I had to say, I grew up in Philadelphia, I’ve never seen the city as vibrant as it is today. Despite the outflows, you’ve got a lot going on here.
There’s a ton of data that you must be taking in — not only the economic data, but the voting data from primaries and caucuses. Are you able to glean anything from the votes so far, either from Republicans or Democrats? In our modeling, we account for economic factors and political factors. And the key political factor is turnout — can you get your voters to go to the polls? And that goes right back to enthusiasm. And it appears that Trump’s voters are more enthusiastic than Biden’s voters, at least at this point in time.
When it comes to inflation, obviously, the big thing to watch is the Fed’s interest rate. Markets seem to think the Fed won’t cut until July, which would mean a maximum of two cuts prior to the election. Do you think that outcome would make a difference in the election? It can’t hurt. For every rate cut, you’ll see a decline in interest rates on credit cards, on buy-now-pay-later loans, probably on auto loans. So it would provide some relief. It would be mostly on the margin.
The interest rate that matters the most is the 30-year fixed-rate mortgage right. And in all likelihood, those rate cuts will not impact that. That’s determined by long-term interest rates. The Fed influences it through expectations that are embedded, so the fact the markets expect two rate cuts, quarter-point each by the end of the year, is already reflected in the current mortgage rates.
It would also come fairly late for the housing market. Yeah, exactly. If it came in July, as markets anticipate, by the time it showed up in sales, it would probably be beyond the point where it really mattered to most people.
It’s all about expectations. If people see rates coming in, and markets are expecting rates to come down further, people could take that into consideration. Trend lines matter to people, because they’re doing a forecast, and they’re going to be using what happened recently to do the forecast.
It’s these little things on the margin that may actually decide who wins this thing. It’s going be that close.
This interview has been edited for length and clarity.
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.
Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.
Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”
The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.
Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.
“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”
Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.
Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.
Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.
B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.
The election is expected to be called on Sept. 21, with the vote set for Oct. 19.
“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”
Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.
Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.
The premier said that now is not the time to reduce supports and services for people.
Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.
Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.
This report by The Canadian Press was first published Sept. 10, 2024.
Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.
But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.
He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.
Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.
Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.
Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.
This report by The Canadian Press was first published Sept. 10, 2024.
