Weakening economy and volatile markets open door for Donald Trump 

Tim Walz says Kamala Harris has brought the “joy” back to the campaign. He’s right: Democrats were borderline suicidal when President Biden was still running for reelection; now they are practically giddy over Kamala Harris. Harris, who never won a single primary vote and was unpopular, long considered Biden’s best insurance policy against being ejected from the race. Remarkably a fawning press, now considers her the ideal candidate.  

Here's a reality check: A new CNBC All-America Economic Survey confirms the race has tightened considerably since Biden dropped out, with Donald Trump now leading Harris by only 2 points, within the margin of error. But on economic issues, by a two-to-one ratio, Americans think they will be better off financially under Trump. 

Some 79 percent of Republicans believe their economic fortunes will improve if Trump wins, whereas only 48 percent of Democrats think they will be better off under a President Harris. Independents favor Trump on the same issue, with 31 percent believing their economic future is brighter under a Trump presidency compared to a mere 10 percent who expect Harris to make their lives better. 

As the U.S. economy slows and anxieties about employment increase, that is huge. One of the negatives for Trump in 2020 is that Americans were understandably hyper-focused on COVID-19, and less worried about the economy. Under the former president, unemployment had declined, inflation was non-existent and, in response to Trump’s tax cuts and a more favorable regulatory environment, growth had accelerated from the dismal underperforming Obama years.    

Until very recently, employment and economic expansion have not been issues that would have reliably boosted the campaign of the former president. Under Biden, the economy has grown moderately and jobs have been plentiful. There have been weak spots, including manufacturing, which has contracted in 20 of the last 21 months. But overall, the economy has been healthy.   

Except for inflation. For most of Biden’s presidency, prices have risen faster than wages, leaving most American workers behind.   

Many economists blame Biden’s enormous federal spending spree for causing prices to soar. Under Trump, bipartisan votes in Congress had also authorized a blast of federal spending meant to keep the economy from collapsing during the government mandated economic shutdown. The increase in unemployment benefits, pauses on rent and student loan payments and other measures were meant to be temporary, but President Biden kept those programs alive well past their supposed expiration dates. 

In addition, he authorized and Democrats voted to allow trillions more in spending, causing government outlays to reach levels relative to GDP never seen before except during national emergencies.  

President Biden and Vice President Harris have never acknowledged their role in causing inflation. As Americans struggled to make ends meet, they dismissed the jump in everyday costs as “transitory” or blamed Russia’s Vladimir Putin, or “greedy” corporations. 

In fact, the Biden-Harris team’s greed for votes caused this mess. Kamala Harris, now the presidential candidate, continues to promise voters even more new federal programs, without even a footnote about where the money will come from. She pledges to make housing more affordable; we assume she is on board with Biden’s proposal to hand out tens of thousands of dollars to first-time home buyers, in order to help them with their down-payment. Someone in the White House should look at what routinely happens when the federal government starts flooding an industry with cash: Prices skyrocket. Witness: college tuitions, which have grown twice the rate of inflation.  

It is not a given that the U.S. is about to tumble into a recession, but the likelihood of a downturn has increased. Goldman Sachs puts the chances of a recession at 25 percent; JP Morgan has just upped the odds to 35 percent. What we do know is that the employment picture is fast becoming less rosy, with fewer jobs available and wage growth slowing. The stock market chaos this week may have been triggered by the unwinding of a vast carry trade in Japan, but it was also spurred by doubts about the U.S. economy. 

Doubts that show up in consumer sentiment readings which trailed lower even before weakness began to cloud the jobs picture. The latest reading on sentiment from the University of Michigan of 66 was off 7 percent from a year ago and down a remarkable 27 percent from 90 in August 2019, when Donald Trump was president. Sentiment influences spending, which directs the economy. To have the nation’s optimism at such a basement (and it is way below trend) level when unemployment is still low and inflation is supposedly retreating is remarkable.  

But, consumers are having to shell out 6 percent more on the supplies their kids need for school, with more than one third of families saying they will have to buy some items used or skip them altogether. The four-week average of unemployment claims is ticking steadily higher, promising another jump in the jobless rate. Housing is less affordable than in decades. Meanwhile, consumer debt continues to rise, along with delinquencies, which are at “elevated levels” and significantly higher than a year ago, according to the Federal Reserve Bank of New York.   

Also, a slew of companies like Airbnb, Disney, McDonalds, Proctor and Gamble and Hilton Hotels are reporting that consumers are beginning to retreat in the face of continued high prices and exhausted pandemic-level savings. 

All these trends open the door for Trump. If he sticks to talking up his economic record and not launching unpleasant ad hominem attacks against his opponents, he will bring back the voters who elected him in 2016. They will answer that famous question from Ronald Reagan, “Are you better off than you were four years ago?” by convincingly defeating Kamala Harris. 

Liz Peek is a former partner of major bracket Wall Street firm Wertheim and Company.