America’s voters have not given credit to the Biden White House for their country’s economic boom. Will they punish Kamala Harris for a bust? After growing at rates that were the envy of the rich world, the American economy now seems to be slowing. Investors are worried that a recession is just around the corner.
On 2 August, following a disappointing survey of manufacturers and a rise in claims for jobless benefits, they took fright at the news that the country’s unemployment rate had risen to 4.3% in July, its highest since 2021. On 5 August, stock markets slumped worldwide, before recovering a little lost ground the next day.
The economy does not determine elections in America, but it is important. Its course over the next 90 days will weigh on the incumbent Democrats’ chances in November’s presidential election.
An outright recession would probably spell doom for Ms Harris. But even if the economy is only cooling, as is likely, it could harm her and help Donald Trump.
Analysing the indicators
Is America really on the brink of recession? Some indicators look ominous for America’s economy. The unemployment rate has risen significantly from its recent lows, a move that has often signalled recessions in the past.
Rules of thumb suggest that, given the state of the economy, interest rates are probably one to two percentage points too high. Indeed, yields on long-term Treasuries have fallen below those on short-term bonds, in anticipation of a weakening economy and steep interest-rate cuts by the Federal Reserve.