As last year drew to a close, President Trump’s reelection prospects had never looked brighter: Impeachment was behind him, unemployment was at historic lows, the stock market seemed to hit a new high every day, and Americans who generally agree on little else felt pretty great about the state of the U.S. economy. Gallup found that 62% rated economic conditions “excellent” or “good,” the most in a decade. Nothing on the horizon indicated cause for worry.
Coronavirus changed that within a matter of weeks. Economic repercussions have traced the path of the virus with astonishing speed, first ravaging financial markets in China, then Europe, and finally the U.S. On Feb. 12 the S&P 500 hit a record high; 30 days later the index had plunged almost 30%, capped off by what was at the time the worst single-day decline since the 1987 “Black Monday” crash.
The timing couldn’t be worse for Trump’s political hopes. Academic research has consistently found that voters judge incumbent presidents based on the state of the economy in an election year—and that their impressions of economic performance solidify over the spring, which means now.
“In my model and most other forecasting models, the election year economy is critical,” says Alan Abramowitz, a political science professor at Emory University whose election model has been among the most accurate. “And the second quarter seems to be what really matters in terms of shaping the outlook of voters heading into the election.”
That bodes ill for Trump. The force and scale of the crisis, exacerbated by the president’s initial denial and slow federal response, paint an ugly picture of the economic effects soon to come. Forecasters are sharply downgrading growth estimates and expect the brunt of the economic damage to land in the second quarter. Goldman Sachs forecasts that U.S. gross domestic product will fall 5% in the second quarter; Pantheon Macroeconomics predicts a 10% drop; and JPMorgan sees a 14% drop.
During a press briefing on March 16, President Trump and his coronavirus task force announced that the Covid-19 pandemic could last for months, and gatherings should be limited to 10 people.
While many also anticipate a bounce back late in the year, a recession now looks unavoidable. A survey of prominent academic economists by the University of Chicago Booth School of Business found that a majority expect a “major recession” as a result of the virus. On March 17, Morgan Stanley and Goldman Sachs declared that a global recession is already under way. “The middle two quarters of this year are going to be very challenging, even if we get the spread of the coronavirus under control quickly,” says Carl Tannenbaum, chief economist at Northern Trust Corp. and a former Federal Reserve staffer.
Although Trump may be a victim of bad timing in having to confront an election year pandemic, his decision to treat coronavirus as a publicrelations emergency, rather than a public health emergency, has expanded the scale of the crisis that’s engulfed his presidency. His early attempts to talk up the stock market by playing down the threat delayed the government’s response. “We have it totally under control,” Trump insisted on Jan. 22. “It’s going to be just fine.”
That delay, coupled with the failure to massproduce a reliable test, allowed the virus to spread and compound the damage to the economy. “The length and depth of the global economic contraction depends most importantly on whether health officials can materially slow the spread of the virus via a ramp-up in testing, restrictions on mass gatherings, and quarantines of infected people as well as their contacts,” Jan Hatzius, chief economist at Goldman Sachs, told clients on March 9. In the U.S., those restrictions began to be imposed only in the past week, when state and local officials lost patience with the Trump administration and began taking action on their own.
On March 16, seeing that his PR offensive wasn’t slowing the virus, Trump struck a much direr tone. “This is a bad one,” he said. “It’s bad. We’re going to hopefully be a best case and not a worst case.”
Now he faces an even tougher task than he did back in January: Limiting the spread of the virus will entail advocating measures that worsen the near-term hits to the economy. These include shutting schools, restaurants, and bars and limiting foreign and domestic travel. In an economy that depends overwhelmingly on consumer spending, that will not only hurt economic growth but will also cause mass job losses and reduced earnings. Forecasting firm IHS Markit says the unemployment rate could almost double, to 6%, by the middle of next year. In discussing the need for significant stimulus, Treasury Secretary Steven Mnuchin told Republican senators that without government intervention the jobless rate could soar to 20%, Bloomberg reported.
More than 18 million Americans work in industries that will suffer from efforts to curtail the virus, according to JPMorgan Chase economist Michael Feroli. Major League Baseball, the National Basketball Association, and Major League Soccer have all suspended their seasons. Broadway and Disneyland have shuttered. The major U.S. airlines have announced they’ll aggressively cut flights, and hotel reservations are being canceled nationwide. Collectively, this segment of the economy—what might be called “virus- vulnerable leisure”—accounts for up to 10% of U.S. GDP, or about $2 trillion, according to Feroli. And that doesn’t count changes in behavior that hit other parts of the economy— from canceled doctor’s appointments and elective surgery, to delayed home repairs, to putting off simple things like getting a haircut.
A blow to personal income appears unavoidable and could be especially damaging to Trump’s prospects. Larry Bartels, a Vanderbilt University political scientist, says changes in personal income, even more than GDP, shape voters’ impression of an incumbent. He and Princeton University professor Christopher Achen “found a strong relationship between changes in real disposable income per capita in the second and third quarters of presidential election years and the incumbent party’s electoral fortunes,” says Bartels. While it’s impossible to draw precise conclusions from the limited number of modern presidential elections, “shortterm changes definitely seem to be more important than long-term changes, and real incomes seem to be more relevant than GDP,” he says. “Insofar as the coronavirus produces an economic slump over the next six months, I would certainly expect that slump to adversely affect President Trump’s reelection chances.”
One irony of Trump’s electoral predicament is that U.S. economic fundamentals appeared strong on the eve of the crisis. That’s one reason many economists still anticipate a healthy rebound once the contagion has safely passed. But that turnaround may arrive too late to help Trump. And studies suggest voters are unlikely to credit him for the three years of steady growth and low unemployment that preceded the virus outbreak. The reelection campaigns of Jimmy Carter and Bill Clinton offer an illustration of why Trump has cause to be nervous.’
In a 2013 paper, “Substituting the End for the Whole: Why Voters Respond Primarily to the Election-Year Economy,” Andrew Healy of Loyola Marymount University and Gabriel S. Lenz of the University of California at Berkeley examined annual personal income growth across presidential terms. Across Clinton’s first term, personal income growth was moderate overall, but it was strongest in the critical fourth year. Carter had the opposite experience, with the worst year arriving at the end: Personal income growth actually declined in his final year in office. Even though Carter oversaw higher cumulative income growth during his full term (6.9%, vs. 6.2 % for Clinton), he lost his bid for a second term, while Clinton won easily.
That outcome is consistent with how voters have judged incumbent presidents in other elections. “Voters are myopic,” Bartels and Achen write in their book, Democracy for Realists. “The performance of the economy over the course of a president’s entire term—which provides a better measure of changes in voters’ welfare, and presumably provides a more reliable benchmark of the incumbent’s competence as well—is almost entirely discounted by voters when they go to the polls.”
The question now is how bad the economic fallout will be and what Trump and other officials can do to curb its effects. The Federal Reserve has made two rounds of emergency rate cuts in March, slashing interest rates to near zero and announcing a $700 billion bond-buying program. That did more to spook investors than reassure them, as U.S. stocks plunged 12% the next day. “The aggressive actions align with the worst expectations about the spiraling impact of the Coronavirus,” Bloomberg Economics wrote in an analysis. Going forward, monetary policy will be of limited use, with interest rates having reached the zero lower bound and consumer and business spending frozen by fear of the virus and its related disruptions.
That leaves fiscal policy as the last hope. In early March, Congress passed an $8.3 billion bill for vaccine research and prevention. On March 16 the Democrat-led House passed a second, $100 billion bill to increase testing and provide paid sick leave. Both parties believe an additional major stimulus is necessary, though they don’t yet agree on its focus. Trump initially advocated a payroll tax holiday but got pushback from both parties, because it wouldn’t act fast enough or help people who get laid offor can’t work.
That idea has been eclipsed by proposals to send Americans cash payments to help them cope with the crisis and boost spending power—a much faster alternative. Trump has embraced a proposal first floated by Utah Senator Mitt Romney to disburse $1,000 checks. The president would like them cut within two weeks. Democrats have talked about more generous measures along the same lines. Democratic Representatives Ro Khanna of California and Tim Ryan of Ohio would send checks of $1,000 to $6,000 to every American who earned less than $65,000 last year, a group that encompasses three-quarters of American workers. But while few people will complain about receiving a check during an economic downturn, it’s not at all clear that this would do much to improve Americans’ overall view of the economy—or the man presiding over it.
On March 17 the administration began seeking support for a stimulus bill of up to $1.3 trillion, while Senate Minority Leader Chuck Schumer prepared his own broad stimulus, said to cost at least $750 billion. But the 2008 financial crisis showed that passing a large stimulus bill, even in a time of extraordinary need, is an arduous undertaking. Hurdles this time include philosophical objections from Republicans in Congress to the size of the U.S. budget deficit, already on track to exceed $1 trillion in the current fiscal year.
Even a successful stimulus bill and aggressive monetary policy carries no guarantee of shielding the economy. “It really is depending heavily on the spread of the virus, and the measures taken to affect it and how long that goes on,” Federal Reserve Chairman Jerome Powell said on March 15. “And that’s just not something that’s knowable.”
While Trump faces a daunting obstacle to winning a second term, he could win despite a recession. Increased political polarization has brought approval ratings that are more fixed than in the past—especially his. So far, that polarization seems to extend to attitudes about coronavirus: Polls show Republicans consider it far less of a threat than Democrats and independents do.
But polarization cuts both ways. Historically, incumbency has been a strong advantage and a reason why most presidents win a second term. That may no longer be the case. “We see it in congressional elections,” says Emory’s Abramowitz. “The advantage of incumbency is much smaller, because voters just won’t cross party lines.”
If the financial crisis and recession are large enough to overwhelm the partisan instinct, Abramowitz suspects that the end result won’t benefit Trump. “A recession is one thing that could really penetrate people’s consciousness,” he says, “because it shows up in real life—and not in a good way.”