An economic forecast

The fundamentals suggest a close Harris win in the popular vote

It’s mid-summer of an election year, so that seems like a good time for some election forecasting!

If you’ve followed me on other media, you know I like occasionally running these simple models to predict elections based on a few key factors, like the state of the economy and presidential popularity. I view these efforts as more of an intellectual exercise than a hard prediction – they give us an idea of what our baseline expectations should be for this election. This is not some sort of “Keys to the White House” maneuver where I’m over-fitting data to somehow come up with the right answer.

Anyway, I’m doing a forecast of the incumbent party’s vote share (that is, the vote share for the nominee of the party currently holding the White House) since 1948 based on four variables:

• Growth in GDP from the third quarter the year before the election to the second quarter the year of the election. (There are other good measures, including real disposable income, and there’s nothing magical about this time range. It’s good to include the third quarter of growth in an election year but we’re in the middle of that right now.) In 2024 this figure is 1.9% growth.

• The Gallup approval rating of the incumbent party’s presidential candidate as of Labor Day of the election year. Biden’s approval rating is about 39% right now, although it could be different by Labor day.

• The number of consecutive terms the party has held the White House. This is 1 for Democrats right now.

• Whether the US is at war or not. This is a tricky one, but I view the US as not being at war today. (Yes, even though we provide military support for Israel and Ukraine, we do not have soldiers on the ground shooting and dying in those places.) The US was at war in the election years of 1952, 1968, and 2004.

Now, here’s a tricky thing – I’m omitting the year 2020, because it was a crazy year. By that I mean, the main economic indicators were profoundly diverging in weird ways in the second quarter of 2020 thanks to Covid; GDP was massively contracting as people got laid off during the shutdowns, while disposable income was massively booming thanks to government economic supports. It was simultaneously the best and worst of times, with a pretty close election result. Omitting this case doesn’t change the results that much, and I think it’s defensible to toss out an unrepresentative outlier.

Anyway…