Historically Low Poll Numbers And A Slowing Economy Are Endangering Trump’s Re-Election
A year and a half before the Presidential election, Trump’s electoral position looks precarious to say the least. According to FiveThirtyEight, Trump currently stands at a net approval rate of -11.6, and he hasn’t been better than -8 since March of 2017. Of the 12 Presidents in office since 1945, only 1 has had a negative net approval rate at this point in their first term — Jimmy Carter — and we know how that turned out. By contrast, Obama was at +1.5 in May of 2011, and he went on to win in 2012 by the still relatively modest margin of 3.9 percentage points.
Crucially, and even worse for Trump, this extremely poor level of approval has taken place while the economy has been strong. By the 1980 election in which Carter lost by 8.3 percentage points, the economy had entered a recession and unemployment was near 8%. By contrast, Trump inherited an economy with 4.8% unemployment and job creation of over 210k/month, and that strength has largely continued to this point. What this means for Trump, however, is that he is probably getting the largest boost from the economy to his approval rate that he will get — that is to say, he is at his high water mark in the polls right now. Furthermore, as the economy weakens, it is likely that voters who approved of him primarily because of the economy will grow more likely to oppose him. It could be devastating to his electoral chances in 2020, therefore, that the economy seems to have begun a sharp deceleration over the past several months (something that the conventional wisdom is only now beginning to acknowledge).
First, the economy in the first quarter of this year was never close to as strong as was commonly assumed. This misconception was based upon two very strong headline reports (3.1% GDP growth and 3.6% unemployment) whose underlying data was actually quite poor. The headline GDP number came in strong because two temporary, one-off factors (inventories and net exports) gave big boosts to the economy in Q1. However, these boosts will not happen again for the rest of the year, and the fact that they were large in Q1 will actually cause them to subtract from growth in Q2-Q4 (as businesses reduce their inventories after a big build-up for example). In fact, the core components of GDP — consumption and business investment — grew at their slowest rate since 2013, illustrating that the fundamentals of the economy were weak. Similarly, the unemployment rate fell to its lowest level in 60 years in April not because more people were employed, but because 490,000 people dropped out of the labor force. According to the household survey that is used to calculate the unemployment rate, 103,000 fewer people were employed in April than in March, and 300,000 fewer people were employed in April than in December 2018.
Second, the deceleration in the economy has become very clear with the release of new economic data for April and May. Three key reports that look at the fundamentals of the economy — retail sales, industrial production, and business investment — all came in very weak in April. Retail sales, a good proxy for consumer spending, fell for the 3rd time in the past 5 months while industrial production grew at its slowest rate since February 2017. Capital spending, a good measurement of the level of investment by businesses, declined to its lowest overall level since June 2018. And this data was all compiled before Trump increased tariffs on $200 billion of Chinese goods from 10% to 25%, and threatened tariffs of 5% on all Mexican imports. This rapid escalation of Trump’s trade wars with China and Mexico starting in mid-May has clearly affected the economy, and has turned already weak April numbers into extremely poor May ones. For May as a whole, services activity fell to its lowest level since early 2016 while manufacturing activity cratered to levels not seen since 2009. Furthermore, job growth fell significantly, expanding by only 75,000 jobs in May compared to the 2014–18 average of 215,000 jobs per month. Finally, consumer confidence took a sharply negative u-turn after the imposition of the tariffs in mid-May, which will likely weaken consumer spending in the weeks ahead.
Overall, then, the economy has clearly taken a dramatic turn for the worse over the past few months, something that is now starting to be reflected by the conventional wisdom in the markets and media. The Atlanta Fed and New York Fed now project Q2 GDP growth to be an average of only 1.2%, while Goldman Sachs, JP Morgan, and Morgan Stanley see an average of just 0.9% growth. Similarly, the Fed’s preferred metric for forecasting recessions — the yield curve — is now at its flattest point (meaning the highest probability of recession) since 2007. And the economy is likely to only get worse in the coming weeks. The most important risk factor for a further deceleration is Trump’s trade wars, and conflicts with China, Mexico, and Europe all look unlikely to abate anytime soon. With China, negotiations have come to a complete standstill and Chinese state media has become far more hostile to the US in recent weeks, meaning that the chance of a deal is extremely unlikely. Furthermore, as of this morning the White House has said that Trump still intends to impose the 5% tariffs on Mexican imports, and the complete lack of progress in trade talks with the EU means that the chance of a 25% tariff on auto imports from the bloc is increasingly likely. As these conflicts continue unabated, the risk of a full-blown recession only increases. Indeed, Morgan Stanley’s economists last week forecast a global recession if Trump escalates his trade wars any further.
What does this mean for Trump and his chances of re-election in 2020? Very simply, it could mean that the President suffers a major defeat in 2020, if not an early primary challenge late this year. According to Ipsos polling from mid-May, Trump has a positive approval rate on just 2 out of 14 policy areas — his handling of the US economy (+5) and employment and jobs (+12). His average approval on the other 12 areas is -13, including -12 on healthcare, -12 on trade, -13 on taxation, and -11 on foreign policy. If the economy falters and his approval on those metrics falls in line with his broader popularity, the GOP could face a landslide defeat next year. As it is right now, Trump is the most unpopular first-term President in the postwar period, but depending upon his actions towards China, Mexico, and Europe over the next few months, things for him could get a whole lot worse.