with Brent D. Griffiths
Moody’s Analytics projects the president will win handily next year if the economy doesn’t badly stumble — and in fact, rack up a greater margin in the electoral college than the 304-to-227 victory he secured against Hillary Clinton in 2016.
“If the economy a year from now is the same as it is today, or roughly so, then the power of incumbency is strong and Trump’s election odds are very good, particularly if Democrats aren’t enthusiastic and don’t get out to vote,” Mark Zandi, chief economist at Moody’s Analytics and co-author of the paper outlining the findings, tells CNBC’s Brian Schwartz. “It’s about turnout.” (I laid out an argument against this kind of modeling here).
But assuming average Democratic turnout, the firm projects the 2020 map will look like this:
The finding jibes with those of other forecasting models that rely on measures of the economy’s strength to predict which major party’s candidate will win the White House next. Oxford Economics sees Trump winning 55 percent of the popular vote next year barring a “significant downturn” in the economy.
“While a wide range of issues have influenced presidential elections over the last few decades, from health care and foreign policy, to taxation and government spending, one factor has been constant: It’s the economy, stupid,” Greg Daco and James Watson, two senior economists with the firm, wrote last week.
And by the reckoning of the firm’s model, three key economic indicators — unemployment, inflation and real disposable income growth — all favor Trump’s reelection. They outweigh a “negative exhaustion factor” with Trump that dents his support in the projection.
Daco and Watson acknowledge the economy isn’t everything. But their model, which leans on it, accurately predicts all but two popular vote outcomes going back to 1948. See their results here:
They point to two key caveats that could hamstring their model’s accuracy this time. It “excludes noneconomic factors about a candidate’s record that are vital in most elections” and “pays no attention to candidates’ attributes such as race, gender or ‘likeability’ — a factor that may be centrally important in 2020.” And a severe recession, “potentially triggered by a combination of rising tariffs, declining profit margins and an adverse financial market shock,” could also turn the projection against Trump’s reelection.
Another model, assembled by Trend Macrolytics, accurately predicts every presidential victor back to 1952 by focusing on the effects of the economy and incumbency on the electoral college, according to Donald Luskin, the firm’s chief investment officer. It projects Trump will win reelection next year with 354 electoral votes — a margin that seems staggering on its face. “To get something that high, you have to go back to Ronald Reagan, and that may not be possible in the red-blue world we live in now,” Luskin tells me.
The model stakes first-term incumbents with a heavy advantage. (That edge curdles into a disadvantage for candidates running to extend their party’s hold on the White House into a third or fourth term. See: George H.W. Bush in 1992 or Al Gore in 2000.) And then it factors in six economic indicators, including oil prices, personal income, inflation and tax burdens.
One seemingly important measure the model doesn’t include: The president’s approval rating. Luskin says it actually doesn’t carry much predictive power. And besides, Trump’s remains in the middle of the pack for presidents around the 1,000-day mark in their first term:
Of his own model’s projection, Luskin says “it is directionally correct, and I’m willing to put real money that Trump is going to be reelected, assuming all the model inputs are the same as they are today.” But he adds that “you and I and Mark Zandi should take a humility pill here. We still live in a world of imponderables, and these are very rough navigation tools.”
— U.K., E.U. leaders strike Brexit deal. The Post's Michael Birnbaum, William Booth and Quentin Ariès: "European and British negotiators struck a deal Thursday to split Britain from the European Union, raising the prospect that the country could be out of the bloc by the end of October. Negotiators working through the night in Brussels struck a deal Thursday morning after Prime Minister Boris Johnson signed on despite lingering questions about warring Brexit factions in London. The agreement would still need approval by European leaders and the British Parliament...
"It could still fall apart in Parliament, as a previous deal did under Johnson’s predecessor, Theresa May. Diplomats said that if a deal is reached Thursday, it could still be possible — just barely — to get it ratified by the European Parliament by the end of the month, giving Johnson a strong incentive to wrestle his warring political tribes into submission."
— Consumer spending slows: “U.S. consumers unexpectedly pulled back on retail spending for the first time in seven months, reviving fears that a weakening economy could finally be taking its toll on American shoppers just before the pivotal holiday season,” my colleague Abha Bhattarai reports.
“Retail sales slipped 0.3 percent in September from the month before, the U.S. Commerce Department said, as shoppers spent less on automobiles, building materials and sporting goods. Sales at department stores fell 1.4 percent from the month before, while online shopping slipped by 0.3 percent.”
- What it means: “Retailers, already rattled by [Trump’s] ongoing trade war with China, are watching closely as they prepare for the all-important holiday shopping season. Recent sales declines signal ‘an early chill for retailers,’ Diane Swonk, chief economist at professional services firm Grant Thornton, wrote in a note to clients.”
— No deal until Xi meets, Trump says: Trump “said he likely would not sign any trade deal with China until he meets with Chinese President Xi Jinping at the upcoming APEC Forum in Chile,” Reuters’s Steve Holland and Makini Brice report.
“Trump, speaking to reporters at the White House, said the partial trade deal announced last week was in the process of being formalized. Trump, Xi and other heads of state are expected to participate in the Asia-Pacific Economic Cooperation (APEC) Forum being held in Santiago from Nov. 11 to Nov. 17.”
Meanwhile, uncertainty hangs over the Chinese commitment to step up farm purchases, WSJ's Chao Deng and Lingling Wei report: "China has promised to buy more U.S. farm products, but questions remain over how much, the time frame for purchases, and what the U.S. might have to give in return...
"Chinese negotiators continue to say purchases must be based on actual demand and at fair-market prices, according to people briefed by the matter. The roughly $50 billion in farm products touted by [Trump] is far beyond what China has historically spent in any one year and would likely require Beijing to lean heavily on its state-owned firms to accomplish."
— Senators look to defy Beijing pressing ahead on Hong Kong bill: “Republican senators said that “they want to move quickly on legislation to support pro-democracy protesters in Hong Kong despite a threat of retaliation from China,” Bloomberg News’s Daniel Flatley and Iain Marlow report.
“‘Hong Kong is a high priority for me,’ said GOP Senator Jim Risch, chairman of the Foreign Relations Committee. ‘We’re going to move on it as rapidly as we can.’ Senator Roy Blunt, a member of the Senate GOP leadership, said there haven’t been any discussions about the timing for a vote on Hong Kong legislation similar to a measure that passed the House Tuesday.”
— The mystery behind insanely profitable trades off of Trump chaos. Vanity Fair's William Cohan: "In the last 10 minutes of trading at the Chicago Mercantile Exchange on Friday, September 13, someone got very lucky. That’s when he or she, or a group of people, sold short 120,000 'S&P e-minis'—electronically traded futures contracts linked to the Standard & Poor’s 500 stock index—when the index was trading around 3010. The time was 3:50 p.m. in New York; it was nearing midnight in Tehran. A few hours later, drones attacked a large swath of Saudi Arabia’s oil infrastructure, choking off production in the country and sending oil prices soaring. By the time the CME next opened, for pretrading on Sunday night, the S&P index had fallen 30 points, giving that very fortunate trader, or traders, a quick $180 million profit. It was not an isolated occurrence...
"Traders in the Chicago pits have been watching these kinds of wagers with an increasing mixture of shock and awe since the start of the Trump presidency. They are used to rapid fluctuations in the S&P 500 index; volatility is common, of course. But the precision and timing of these trades, and the vast amount of money being made as a result of them, make the traders wonder if all this is on the level."
— GM, UAW agree to tentative deal to end strike: “ … For the first time in weeks there is an end in sight for the 46,000 United Auto Workers members whose nearly five-week strike at General Motors brought the company to a halt and helped kick-start a discussion about pay equity at blue-collar workplaces across the country,” my colleague Eli Rosenberg reports.
“The deal is not yet final and its details are scant. Workers will get to vote on it, but not until the 175 or so union leaders from GM facilities around the country meet Thursday in Detroit to approve it first. So, at least until then, the strike goes on.”
— Five companies are in talks over opioids settlements: “Five makers and distributors of opioid painkillers are in discussions with state attorneys general over a potential settlement worth about $22 billion in cash, and more in drugs and services, according to people familiar with the situation,” CNBC’s Meg Tirrell reports.
“The possible deal comes days before the start of the first federal trial seeking to hold industry to account for the epidemic. Three major drug distributors — McKesson, AmerisourceBergen and Cardinal Health — are in discussions to pay $18 billion, while drugmaker Johnson & Johnson has offered $4 billion, according to the people, who declined to be identified because the talks are private. Teva Pharmaceuticals is in talks to contribute at least $15 billion worth of drugs, with more value coming from some of the five companies in the form of drugs and services, the people said.”
— WSJ goes inside Facebook’s botched libra effort: “The libra project is on life support after high-profile backers dropped out of the network under pressure from lawmakers and regulators. [Trump], Federal Reserve Chairman Jerome Powell and Rep. Maxine Waters, the Democratic chairwoman of the House Financial Services Committee — three people who agree on little — have all criticized it. European officials are trying to halt its launch,” the Wall Street Journal’s AnnaMaria Andriotis, Peter Rudegeair and Liz Hoffman reports.
“With libra, Facebook barreled into the world of finance with techno-utopian bravado, then found itself caught in a tangle of regulatory skepticism and entrenched interests. Lawmakers, already uncomfortable with how Facebook handled privacy around users’ photos and posts, have drawn the drawbridge on users’ money.”
Fed's Brainard says the cryptocurrency faces steep regulatory hurdles. Reuters's Pete Schroeder: "Federal Reserve Governor Lael Brainard said on Wednesday that Facebook’s efforts to launch a Libra cryptocurrency must overcome a 'core set of legal and regulatory challenges' before facilitating a single payment. Brainard added that central banks’ efforts to conduct monetary policy could be 'complicated' by widespread adoption of an external stablecoin like Libra. But she suggested the Fed is in no rush to issue its own digital currency, saying it raises 'profound legal, policy and operational questions.'"
— SoftBank, JP Morgan to submit proposals for a WeWork bailout: “SoftBank and JPMorgan Chase will submit separate funding packages to WeWork’s board in the coming days, and the office-sharing company will choose between the two or a combination of both, according to people familiar with the matter,” CNBC’s Alex Sherman reports.
“WeWork’s board is prepared to see both proposals by the end of the week, said the people, who asked not to be named because the discussions are private. SoftBank, WeWork’s largest external shareholder, may float a combined package of debt and equity and is also talking to outside investors about putting in money, the people said. J.P. Morgan’s proposal is expected to be all debt.”
— FCC approves T-Mobile-Sprint merger: “Mobile US Inc’s proposed $26.5 billion tie-up with Sprint Corp. won formal approval from the Federal Communications Commission … in a vote split along party lines, two sources told Reuters,” Reuters’s David Shepardson reports.
“Chairman Ajit Pai and two Republican commissioners voted to approve the deal while two Democratic commissioners voted against it, the sources said. The text of the approval order is not expected to be released until later in the month. The deal to combine the third and fourth largest U.S. wireless carriers, which has been fighting for government approval since April 2018, still faces a lawsuit brought by a group of state attorneys general, headed by New York.”
MONEY ON THE HILL
— Rep. Elijah Cummings (D-Md.) dies. The Post's Jenna Portnoy and Antonia Noori Farzan: "Elijah E. Cummings, a Democratic congressman from Maryland who gained national attention for his principled stands on politically charged issues in the House, his calming effect on anti-police riots in Baltimore, and his forceful opposition to the presidency of Donald Trump, died early Thursday morning at Johns Hopkins Hospital, the Associated Press reported. He was 68.
"After undergoing an unspecified medical procedure, the Democratic leader did not return to his office this week, the Baltimore Sun reported. A statement from his office said that he had passed away due to 'complications concerning longstanding health challenges.'"
— Uber and Lyft blow off the Hill: “Uber and Lyft decided to skip a congressional hearing aimed at examining their safety and labor practices, to the aggravation of members of the committee who are threatening to press ahead regardless with new legislation,” my colleague Faiz Siddiqui reports.
“The two companies have come under increased scrutiny in recent months over their treatment of drivers and their efforts to keep passengers safe, prompting a House Transportation subcommittee to call a hearing and urge the companies to testify on the future of ride-hailing. That prompted Transportation Committee Chairman Peter A. DeFazio (D-Ore.) to say during the hearing that the panel will press ahead with legislation that could encompass safety and labor for transportation network companies, or ride-hailing companies, with or without their cooperation.”
— Lawmakers pressed to take action on e-cigs: “Some public-health experts urged lawmakers … to pass legislation aimed at curtailing the use of e-cigarettes, particularly in teenagers and young adults, while others cautioned that such steps could backfire,” the WSJ’s Thomas M. Burton reports.
“A House bill would ban flavors in all tobacco products and prohibit advertising e-cigarette use to youths, among other steps. It comes amid a wave of about 1,300 recent U.S. respiratory illnesses linked to vaping and after the Trump administration said it intends to ban flavored e-cigarettes.”
— 'Absolutely worthless': Dems rip CFPB director. American Banker's Kate Berry and Neil Haggerty: "Consumer Financial Protection Bureau Director Kathy Kraninger faced a barrage of questions Wednesday from lawmakers on the House Financial Services Committee covering everything from the agency's constitutionality to why it has not demanded refunds for consumers in recent settlements.
"The Democrats came to the hearing with proverbial guns blazing, issuing a 333-page report that accused the CFPB under Kraninger of leaving "consumers high and dry" because of its failure to require remediation in several recent settlements. 'If the consumer bureau can’t get relief for consumers who have been harmed — and you admit they’ve been harmed — then what are you doing?' asked Rep. Carolyn Maloney, D-N.Y., early in the hearing. 'If you’re not following direction from your staff to help consumers that are harmed, then you are absolutely worthless.'" Maloney later apologized for the remark.
— Responsible investing group calls for new pressure on Congress, SEC. Principles for Responsible Investment, which advocates for socially responsible investing, is writing its 510 U.S. signatories, urging them to lean on policymakers to stop the Trump administration’s regulatory rollbacks and advocate instead for “urgently-needed sustainable financial policy reforms,” per the group. “Despite its dominant role in the global financial industry, the United States — at a federal level — remains a glaring outlier when it comes to the growing global policy consensus surrounding sustainable finance,” PRI CEO Fiona Reynolds writes in the letter.
- E*Trade, Morgan Stanley, Phillip Morris, Union Pacific, Skechers USA and BB&T Corp. are among the notable companies to report their earnings, per Kiplinger.
- The Senate Banking Committee holds its hearing on the CFPB’s report, Kraninger will testify.
- A Financial Services subcommittee holds a hearing on the impact of stock buybacks.
- A House Small Business subcommittee holds a hearing on opportunity zones and small businesses.
- The Tax Policy Center holds an event on cryptocurrency and tax administration, featuring remarks by IRS chief counsel Michael Desmond.
- Coca-Cola and American Express the notable companies to report their earnings, per Kiplinger.