Will America’s economy swing the election?

Yet by most measures America seems to be experiencing not a crash landing but a gradual slowdown. High interest rates have gradually cooled the labour market since the unemployment rate reached its lowest in April 2023. That in turn has suppressed the growth in wages and dented shoppers' confidence.

Spending and interest rates

Some consumer-facing companies, such as McDonald's, have reported disappointing sales. But others have done much better, and GDP is still expanding. In the second quarter of the year, it grew at an annualised pace of 2.8%, which is above its long-term trend.

Estimates of economic growth in the current quarter stand comfortably above 2%. Restaurant bookings, air travel and tax collections all suggest that growth continues to be strong.

Moreover, lower long-term interest rates are already giving the economy a prophylactic shot in the arm—and it has become more powerful as skittish investors have rushed into bonds this week.

Surveys of banks show some easing in credit conditions. The Fed will need to cut its policy interest rate in September in order to fulfil investors' expectations, but that is a formality. Rates on mortgages and credit-card debt are falling in anticipation.

Voting on the economy

What, then, of the political consequences of a slowdown but not a recession? Ms Harris still has a problem. Even if voters deny Democrats any credit for the economic boom, they may nonetheless blame her if the economy loses steam.

On the face of it, Ms Harris should be able to campaign on the Biden administration's economic record. Workers' median real earnings are 9.4% higher than when Americans went to the polls in 2016. Even among men without a high-school diploma, the unemployment rate is only 5.1%.

As The Economist reports this week, swing states such as Pennsylvania have enjoyed mostly lower inflation and unemployment than the national average. Given all that, the complaint of JD Vance, Mr Trump's protectionist running mate, that America has sacrificed jobs to import "knockoff toasters" is nonsensical.

Republicans' perceptions of the economy are warped by their politics—as are Democrats' in the other direction. But voters as a whole give the Democrats' economic management a worse rating than Mr Trump's and one reason may be because every time they go shopping, they suffer sticker-shock. Even if inflation is falling, prices are nearly 20% higher than when Mr Biden entered office.

How the markets react

Today's bout of stock market wobbles is unlikely to make this worse on their own. Nor do they deserve to—even if Mr Trump has, with predictable hyperbole, christened them "the Kamala crash".

At the time of writing, the S&P 500 index of stocks was 8% below its peak, yet the stock market had been due for a correction, because it was priced so dearly relative to firms' earnings. The index is still up by 9% this year and American firms have on average beaten profit forecasts.

The biggest slump has taken place not on Wall Street but in Japan. The real threat to Democrats is the underlying slowdown that helped unnerve the markets.

Research suggests that voters weigh recent economic events most heavily, meaning that the performance of the economy in the run-up to the election matters most for the result.

Growth in after-tax real incomes per person in just the two quarters before a poll, combined with the time a party has been in office, is closely correlated with American presidential-election results.

It matters in the wallet

Here the Democrats have something to worry about. At the start of the year, real incomes were rising at an annualised quarterly pace of about 1%. As the economy has cooled, this has fallen by roughly half.

Consumer confidence was already unusually low, given strong growth and a jobs boom. With the slowdown, it is even lower today than in January and it may take another knock from stock market falls, or a surge in oil prices if war spreads in the Middle East.

None of this means that Mr Trump is destined to win. Barack Obama returned to the White House in 2012 despite a poor economy, and Mr Trump is vulnerable on other issues. In a tight race, many factors could be the difference between victory and defeat.

A surge of enthusiasm for Ms Harris gives her a narrow lead in our poll tracker this week—though not yet enough to carry the electoral college. She is also favoured by voters on subjects such as abortion and health care. But if she wins, it will not be because she was helped by the economy.