Presidential Fortunes Told in Shifting Economic Signs

More than six months before the presidential election, Ray Fair thinks he knows who will win: George Bush, by a veritable landslide.

Assuming the U.S. economy avoids a tumble, “Bush seems to be almost a shoo-in,” said the Yale University economist, who claims great accuracy for his election-predicting formula.

But at the University of Iowa, political scientist Michael Lewis-Beck is more doubtful about the President’s prospects. “He’s on the razor’s edge right now,” says Lewis-Beck, co-author of a new book titled “Forecasting Elections.”

To a group of scholarly seers, the final chapter of this year’s chaotic campaign is not to be read in tea leaves, Tarot cards or even public opinion polls. Rather, the main clue to what voters will do in November derives from the U.S. economy.

Based on past history, the economy has entered a pre-election phase that will help determine whether Bush is judged a reliable steward of the nation’s well-being or a symbol of dreary times who ought to be tossed out of office.

The current period--springtime of the election year--seems to be influential in voters’ minds, according to researchers who have analyzed past elections.

Slippage from today’s meager rates of growth in the coming months could drag Bush’s economy to depths that helped spell defeat for incumbents Jimmy Carter in 1980 and Gerald R. Ford in 1976. An upturn, however, would boost the economy toward levels linked to victory for incumbents Ronald Reagan in 1984 and Richard M. Nixon in 1972.

“Bush is on the borderline,” said David Hale, an economist at Kemper Financial Services in Chicago. “But if we get economic recovery--and all the indicators have been encouraging--the odds still favor his reelection.”

People’s pocketbooks aren’t the only thing they think about inside the voting booth. War and peace, party affiliation, a candidate’s character and social issues all matter, some years more than others, the experts say.

Still, voters typically hold their wallets close to their hearts. For each of the last 20 years, Americans have ranked some aspect of the economy as either the nation’s first or second most important problem, according to Gallup polls. And a President never has been reelected when the June unemployment rate was higher than the January level in the election year, Lewis-Beck says.

“If unemployment is worsening,” he declares, “the incumbent party will lose.”

Just ask Jimmy Carter. In the first six months of 1980, unemployment rocketed nearly a full point, from 6.9% to 7.8%. When Reagan, his challenger, asked Americans if they were better off than they’d been four years earlier, the voters said no--and denied Carter a second term.

The sort of economic news that shapes elections entails more than just the unemployment rate, studies show. Nor are the technical reports that regularly gush out of Washington paramount with the electorate.

Rather, the most important economic news may arise from what people witness every day--whether a friend or family member is out of work, how their own employer is faring, the direction of local property values, whether local shops seem to be shutting down or new ones opening.

Voters then arrive at personal conclusions of how things are going and what it could mean for their households.

“They might think, ‘I did OK, but it wouldn’t have hurt if the economy did better,’ ” said Rod Kiewiet, a political science professor at Caltech in Pasadena. “They take into account how the economy is doing and apply it to their own lives.”

Together, these everyday guideposts are reflected in broader statistics, which suggest that for a political party to retain control of the White House, growth rates must be in the range of 2% to 3.5% during the middle of the election year, and perhaps late in the prior year as well, according to the varying estimates of scholars.

No President in decades has presided over such a listless period of growth as Bush has for the last three years. The economy expanded an anemic 1.2%, adjusted for inflation, between the time he entered office and the end of last year.

The current forecast is for a less-than-spectacular 2.8% growth rate in the next six months, according to the private Blue Chip consensus of 53 economists. Pessimists say things could turn out worse, with Japan and other countries sinking into downturns that could hurt U.S. exporters.

Today’s 7.3% jobless rate is a six-year high, up slightly from January. Although that could improve, it’s unclear how fast, because employers usually await convincing evidence of an upturn before committing themselves to the cost of new workers. Most economists think a lukewarm national recovery has begun, but the final verdict isn’t in.

The President doesn’t lack tools to help his own cause. The Federal Reserve Board has eased interest rates 15 times to spur growth since the recession descended in mid-1990, most recently on Thursday, after a plunge in Japan’s stock market.

There are other options--critics use the word “gimmicks”--at the disposal of a President who wishes to apply a kick to the economy.

In his State of the Union speech, for instance, Bush announced plans to speed up $10 billion in outlays for transportation and other “growth” projects this year. Similarly, his change in federal tax withholding procedures will give Americans up to $25 billion this year that they otherwise wouldn’t have received until next year’s tax refunds.

“Most of the bells and whistles in the State of the Union address were designed to kick in in the second and third quarter,” maintains Steven J. Rosenstone, a political scientist at the University of Michigan. “It’s a very standard strategy.”

On this much, the analysts agree: Timing is everything, when it comes to slumps and the fate of presidents.

Dwight D. Eisenhower escaped the wrath of hard-pressed voters because downturns hit early in each of his two terms, safely removed from election time. But when the economy tumbled late in his second term, voters took out their resentment on Vice President Richard M. Nixon, the Republican presidential nominee in 1960. Nixon lost that year’s election by the barest of margins to Democrat John F. Kennedy.

Sixteen years later, Carter, the Democratic candidate, seized on the “misery index” of inflation plus unemployment as a rhetorical weapon to injure and ultimately unseat Ford. (The recession actually had ended a year earlier, but growth almost halted in the middle of the election year.)

Then, when Carter sought reelection in 1980, the economy fell into a more precipitous tailspin, shrinking at an almost 10% annual rate in the spring. The steep slump was short-lived and a recovery was in progress by autumn. But it was too late for the incumbent, who lost to Reagan.

“Presidents get blamed for this stuff pretty clearly,” says Clyde Wilcox, a political scientist at Georgetown University in Washington.

Despite today’s warning signs, scholars who specialize in predicting elections disagree on how much danger Bush faces from the economy in November.

Fair, the Yale economist, calculates that the President will prevail against a Democrat, netting a strong 57% of the vote. His forecast is based on a mathematical formula that assumes growth of 2% to 3% in the middle of this year, little change in inflation and a built-in incumbency advantage. By his theory, which he has tested on presidential elections dating back to 1916, such factors provide a truer guide to voting decisions--several months in the future--than do public opinion polls.

“I’m measuring how people vote when they go into the polling booth,” maintains the economist, who considers his forecasts accurate if they fall within three percentage points of the actual vote.

Lewis-Beck, by contrast, computes a slender victory for Bush, predicting he will win 50.5% of the popular vote. In his forecasting formula, he uses data on presidential popularity as well as economic growth trends preceding an election.

Given the state of the economy and Bush’s other problems, Lewis-Beck wonders if his current projection overstates the President’s strength. “I’m a little surprised. I don’t want to say this is my final forecast.”

A hazard for all the forecasters is that in a year with so much alienation from government and politics, voters could pull a major surprise.

Another question is whether structural changes in the U.S. economy are taking a human toll that could influence the vote. For example, many educated, white-collar workers--a group somewhat sheltered in past slumps--have lost their jobs in recent years and face uncertain prospects in the austere corporate climate of the 1990s.

“At historical turning points, statistical models are just not that reliable--and we might be at one,” said Thomas Ferguson, a political scientist at the University of Massachusetts in Boston.