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The Finance 202: The coronavirus economy is already hurting Trump's reelection chances, economists say

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with Brent D. Griffiths

Economists say the rolling economic catastrophe brought on by the novel coronavirus is already hurting President Trump's chances of winning a second term. 

It's shredding President Trump’s key reelection pitch – that he has unleashed unprecedented prosperity – just as former vice president Joe Biden effectively sealed the Democratic presidential nomination. 

Oxford Economics, for one, now sees Trump on track to secure about 43 percent of the popular vote.

That's a collapse from the firm’s October call that he stood to win 55 percent of the vote. 

Still, it's an open question whether the economy will ultimately doom Trump in November. These economists who use macroeconomic data to forecast election outcomes caution that even as job losses surge and the signs of recession deepen, the conditions that will help frame voters’ decisions can still swing dramatically in the months before the election.

Oxford's revised prediction flows from the firm’s latest GDP forecast, released Wednesday: It sees gross domestic product declining by roughly 4 percent this year. And Gregory Daco, chief U.S. economist for the firm, says he expects unemployment will “linger in the vicinity of 10 percent” into the fall.

The firm’s election forecasting model leans heavily on three variables — unemployment, inflation and real disposable income growth. Of those only inflation, tamed by collapsing oil prices, has been trending in Trump’s favor, and “it’s not enough to offset the hit from unemployment and income,” Daco says. The firm has yet to update its electoral college projection, which in January showed Trump losing even amid a relatively strong economy if Democrats simply replicated their turnout in the 2004, 2008 or 2016 elections.

A closer look at key swing states reveals the damage the economic downturn may be wreaking on Trump's chances. 

In six states that delivered Trump’s 2016 victory — Arizona, Florida, Michigan, North Carolina, Pennsylvania and Wisconsin — jobless claims collectively skyrocketed past a staggering 2 million in the last two weeks of March. That amounts to “more than 5 times Trump’s raw vote margin of victory” in those states, Cowen Washington Research Group observes in a note.

“One of the ironclad rules of politics (pre 2016) was that recessions kill Presidential reelections,” Cowen’s Chris Krueger writes. “The Trump re-elect was based off of the economy [and] safety, running against socialism and delivering that message via MAGA rallies. All of that is now in serious question.”  

More than 10 million workers nationally have filed for unemployment benefits over that period. More than 10 million workers nationally have filed for unemployment benefits over that period. And another 6.6 million joined them last week, according to data just released by the Labor Department.

Not every forecaster sees Trump’s prospects taking a dire turn. 

A model assembled by Trend Macrolytics — using six measures of macroeconomic and personal financial wellbeing to predict every winner in presidential elections dating back to 1952 — still predicts a Trump victory by a wide margin.

Donald Luskin, the firm’s chief investment officer, notes the model has only incorporated two variables that updated recently, oil prices and payrolls, and those “have basically been a push.” 

But that will likely change if a recession persists deeper into the calendar this year. “It’s just a race to see how quickly we can end this man-made recession and put people back to work,” Luskin says.

Until that picture becomes clearer, he says forecasters should operate with a healthy dose of humility. “The nature of the emergency itself brings up issues of personal safety and gets people’s minds operating in ways that are unusual,” he says. “I have no idea how exogenous factors the model can’t account for could influence the election. I’d be a fool not to admit those uncertainties.”

Betting markets, for their part, continue to give Trump a solid edge over Biden.

That margin didn’t narrow Wednesday after Sen. Bernie Sanders (I-Vt.) suspended his presidential bid, sealing Biden’s position as the presumptive Democratic nominee. But stocks rallied on the news, a move analysts chalked up to relief that the field’s most outspoken corporate critic is exiting the stage. “It’s a reminder that this is an election year,” Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, wrote in an email to the Post’s Taylor Telford.

One market analyst took the contrarian view. Pangea Policy founder Terry Haines argued in a note that investors should view Biden’s emergence as bad news for markets, since he “presents as a tougher nominee for Trump to beat, which makes it less likely that Trump/Republican market friendly policies continue in 2021.”

Haines nevertheless views Trump as the November favorite, writing, “Trump retains advantages, principally the opportunity to prove himself in the coming months as a virtual wartime president able to bridge party divides and again attract independents.” Whatever their models show now, economists agree that case will be significantly more difficult for Trump to sell from the depths of a recession.

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Trump tracker

Trump is raring to restart the economy.

The White House is expected to announce an economic task force soon: “Trump is preparing to announce as soon as this week a second, smaller coronavirus task force aimed specifically at combating the economic ramifications of the virus and focused on reopening the nation’s economy, according to four people familiar with the plans,” Ashley Parker, Josh Dawsey and Yasmeen Abutaleb report.

“The task force will be made up of a mix of private-sector and top administration officials, including chief of staff Mark Meadows — whose first official day on the job was last week — Treasury Secretary Steven Mnuchin and national economic adviser Larry Kudlow, a senior administration official said. Meadows is likely to lead the task force, though no official decision has been made, two senior administration officials said."

  • Kevin Hassett, Trump’s former chairman of the Council of Economic Advisers, may also join the group, an official told The Post.

Attorney General William P. Barr was blunt about the angst: “I think we have to allow people to adapt more than we have, and not just tell people to go home and hide under their bed, but allow them to use other ways — social distancing and other means — to protect themselves,” Barr told Fox News.

Money on the Hill

Phase 4 talks have hit the rocks.

Pelosi and Schumer want more than just additional money for small businesses: “The Trump administration’s demand for $250 billion in new funding for small businesses provoked a high-stakes standoff as congressional Democrats rejected the no-strings-attached request and countered with an expensive counter-offer,” Erica Werner, Mike DeBonis and Seung Min Kim report. Senate Majority Leader Mitch McConnell is expected to move forward on legislation today, practically daring Democrats to block him.

“[Trump] and Treasury Secretary Steven Mnuchin are seeking the extra small-business money after banks fielded more than 400,000 loan requests in less than a week for firms trying to navigate the economic fallout from the coronavirus pandemic. Mnuchin told Democrats on Wednesday that already $100 billion in loans had been approved, and the program was authorized for $349 billion in funding as part of the $2 trillion law that passed last month.”

  • The Dems’ counter-offer: Democratic leaders want to match the added small business funding with "more than $250 billion in extra money for hospitals, state and local governments and food stamp recipients.”
  • The goal had been to wrap it up by this weekend: “The White House wanted the Senate to vote on the measure Thursday and the House to pass it by Friday, but as of late Wednesday, it was unclear how Congress would proceed. To move on such a tight deadline, Congress would need unanimous consent, a dynamic that gives individual lawmakers extreme leverage to halt any bill."

Pelosi made clear that she is willing to wait: "I have said very clearly: What they are proposing will not get unanimous consent in the House. There is no reason why they cannot come to the table and see the value of what we are offering,” Pelosi told my colleague Robert Costa, speaking by phone from San Francisco and referring to the Democrats’ counter to Mnuchin. “You cannot expect us to ossify inequality in access to capital as we try to fight the coronavirus.”

SBA Nevada district director Joseph Amato criticized big banks for failing to quickly distribute loans to small businesses during a web presentation. (Video: The Washington Post)
Frustrations are mounting over the big banks’ handling of small-business loans.

A top SBA official was caught on camera complaining about the matter: “Big banks that received taxpayer bailouts during the global financial crisis a decade ago are now too slow in helping small businesses seeking assistance through a $349 billion emergency lending program, a high-level Small Business Administration official said in a recorded teleconference obtained by The Washington Post,” Aaron Gregg and Renae Merle report.

“Some banks ‘that had no problem taking billions of dollars of free money as bailout in 2008 are now the biggest banks that are resistant to helping small businesses,’ SBA Nevada district director Joseph Amato said in the Monday teleconference about the Paycheck Protection Program. Amato’s comments offer a rare candid glimpse at the frustrations of federal officials working with thousands of banks to ramp up one of the most ambitious economic stimulus programs in U.S. history.”

  • The Fed modified an asset cap to help Wells Fargo make more loans: “[The Fed] said it would ‘temporarily and narrowly’ modify the growth restriction on Wells Fargo & Co.’s balance sheet,” Reuters’s Imani Moise reports.

Hundreds of new lenders are now joining the SBA program: “Lenders that have never previously registered with the Small Business Administration (SBA) could start to do so through the new online portal, addressing one of several problems with the scheme that banks say have delayed getting much-needed funds to customers,” Reuters’s Michelle Price reports.

“The Treasury also issued new guidance … to help address lingering questions over the terms of the loans, including confirming that banks could use their own promissory note when issuing funds to customers, which had been a source of major confusion.” 

Coronavirus fallout

Rep. Dan Kildee (D-Mich.) explains that many Flint residents still rely on bottled water and fear that coronavirus aid will not reach them. (Video: The Washington Post)
In the U.S.:
  • U.S. surpasses 430,000 cases: “There were 1,973 deaths from Covid-19 in the U.S. during the 24-period ended 8 p.m. Wednesday, according to a WSJ analysis of data from Johns Hopkins University,” Talal Ansari, Liza Lin and Laurence Norman report of the deadliest day yet.
  • Economists see unemployment hitting 13 percent in June. That's according to a Wall Street Journal survey that nevertheless found they expect the recovery to start in the second half of this year.
  • Hundreds of young Americans are dying from covid-19: “The risk appears to rise with every decade of age. The Post found at least 45 deaths among people in their 20s. (It’s hard to give a precise number because of the divergent ways states present age groups: For instance, this figure does not include 15 deaths under the age of 30 in Louisiana and New Jersey.) The Post found at least 190 deaths among people in their 30s, and at least 413 among people in their 40s,” Chris Mooney, Brady Dennis and Sarah Kaplan report.
  • Cuomo says New York will never be the same: “I don’t think we return to normal. I don’t think we return to yesterday,” New York Gov. Andrew M. Cuomo (D) told reporters. “I think if we’re smart, we achieve a new normal.” He did offer a “glimmer of hope that the state’s stringent policies — closing nonessential businesses and requiring residents to stay home — are helping to slow down the spread of the virus,” CNBC’s Noah Higgins-Dunn and Kevin Breuninger report.
  • Loeffler says she will liquidate all personal stock holdings: “Sen. Kelly Loeffler said that she and her husband will liquidate their individual stock shares, amid accusations that the Georgia Republican sought to profit from information she received at a closed-door coronavirus briefing in January,” Felicia Sonmez reports.
Corporate impact:  
  • Plane makers are struggling: Underscoring the challenge for Boeing’s 737 MAX, Airbus said it was cutting its production of the MAX’s chief rival — the A320 — to 40 a month, down from about 60 precrisis,” WSJ’s Doug Cameron reports.
  • Automakers are pressuring to reopen their plants: “[They] are accelerating efforts to restart factories from Wuhan to Maranello to Michigan, using safety protocols developed for China and U.S. ventilator production operations launched in recent weeks,” Reuters's Giulio Piovaccari and Joseph White report.
  • Airbnb was supposed to have a breakout year; instead it's getting crushed. “With global travel nearly at a standstill, the home-sharing giant is expected to lose $1 billion through the first half of the year, and its private-market valuation is dropping,” per the WSJ. CEO Brian Chesky isn't ruling out layoffs.
  • Senators question Bezos about firing of warehouse protest leader: “Five Democratic lawmakers … wrote Inc to raise concern about its firing of a worker who protested warehouse operations during the coronavirus pandemic, according to a copy of the letter seen by Reuters,” Jeffrey Dastin reports. (Bezos owns The Washington Post.)
  • Elliott Management's Paul Singer warned of shutdown on Feb. 1. The hedge fund billionaire told his employees they should plan for a monthlong quarantine a month and a half before New York imposed its lockdown, Bloomberg's Katia Porzecanski reports

From the FT's John Burn-Murdoch: 

Around the world:
  • Italy's progress offers hope: “The country appears to be turning the corner in its battle against the virus. New infections are declining, the number of people needing intensive therapy and other hospital care is stabilizing, and even the daily death toll is finally trending down,” WSJ's Eric Sylvers and Yaroslav Trofimov report.
  • Trump repeats threat to withhold WHO money: “Trump escalated tension with the World Health Organization … once again criticizing the agency’s response to the covid-19 pandemic and threatening to withhold funding," CNBC's Noah Higgins-Dunn and Kevin Breuninger report.
  • The curve begins to flatten in New Zealand: “New Zealand is ‘turning a corner’ in its efforts to contain and eliminate the coronavirus, Prime Minister Jacinda Ardern said after health officials announced only 29 new cases of infection,” Anna Fifield reports from Havelock North, New Zealand.

Market movers

Russian Saudi Arabian leaders to discuss oil deal. Bloomberg's Javier Blas, Grant Smith, and Dina Khrennikova: "The world’s largest oil producers moved closer to an unprecedented deal to ratchet back production and rescue crude markets from a pandemic-driven collapse, after Russia signaled it’s ready to make cuts. Moscow, whose grudge against U.S. shale is arguably the biggest obstacle for a deal, said Wednesday it’s willing to reduce output by 1.6 million barrels a day, or roughly 15%. Oil prices surged in New York.

“At stake is the fate of entire oil-dependent economies, thousands of companies and millions of oil industry jobs as the OPEC+ coalition and Group of 20 oil ministers gather in two key video conferences this week… The battle is not won yet, though, as the Kremlin insists the U.S. should do more than just let market forces reduce its record production.”

Trump Eyes Tariffs as Tool to Tame Oil Glut (WSJ)

With stock-exchange floor closed, traders and investors grapple with uncertainty (Steven Zeitchik)

Pocket change

U.S. regulators handed a win to Google but continue to thwart ties to China.

The search giant won DOJ backing for an undersea cable: “The U.S Justice Department on Wednesday recommended U.S. regulators approve Alphabet Inc unit Google’s request to use part of a U.S.-Asia undersea telecommunications cable after the company warned it would face significantly higher prices to carry traffic by other means,” Reuters’s Andrea Shalal and David Shepardson report.

“Google agreed to operate a portion of the 8,000-mile Pacific Light Cable Network System between the United States and Taiwan, but not Hong Kong. Google and Facebook Inc helped pay for construction of the now completed telecommunications link but U.S. regulators have blocked its use.” 

  • Justice Dept. said there was a security risk if the cable ran through Hong Kong: [DOJ] told the Federal Communications Commission (FCC) in a petition it and other U.S. agencies believe ‘there is a significant risk that the grant of a direct cable connection between the United States and Hong Kong would seriously jeopardize the national security and law enforcement interests of the United States.’ The FCC declined to comment.” 

Dow Jones CEO to step down: Dow Jones Chief Executive Officer Will Lewis is stepping down, parent company News Corp said,” Reuterss Ayanti Bera reports.

“Lewis will continue to work with his team through the COVID-19 crisis for the next month, while a successor will be announced in the coming weeks, the Wall Street Journal owner said.”

Campaign 2020

U.S. Chamber backs AOC's primary opponent. Politico's Alex Isenstadt: “The traditionally conservative U.S. Chamber of Commerce is planning to endorse a primary challenger to progressive icon Rep. Alexandria Ocasio-Cortez, a move that represents a dramatic intervention in a Democratic race. The influential organization typically supports Republican candidates who are closely aligned with the business community. But the Chamber has decided to help Michelle Caruso-Cabrera, a former CNBC anchor who is waging an underdog challenge to Ocasio-Cortez.”



  • The Labor Department releases weekly jobless claims
  • The University of Michigan releases its latest consumer sentiment numbers
  • Federal Reserve Chair Jerome Powell gives remarks and answers questions at Brookings at 10 a.m. EST. Viewable here.

The funnies

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