US economy improves, but Harris still trails Trump in polls

With the US elections just weeks away the economy is showing signs of strength thats unusual for a pre-election period. The jobless rate is at its lowest point in more than two decades‚ gas prices arent as high as some might think and inflation is looking better. This economic upturn should be a boost for Kamala Harris campaign but it seems the recovery may have come too late to give her a clear advantage.

The job market continues to be the driving force behind the economys performance with little change from the recent fifty-year lows in unemployment. Companies are hesitant to let workers go even as hiring has slowed down. This has created a positive cycle: as wages grow faster than inflation employed consumers keep spending which in turn keeps others employed.

Unemployment is now lower than it has been before any recent election except for the one in 2000 (about 24 years ago). Surprisingly this doesnt necessarily mean good news for Harris: in that election the vice president of a departing Democratic president lost in one of the closest races in history to George W. Bush.

Inflation has come back to acceptable levels after reaching a four-decade high earlier in Bidens term. Despite the quick price increases of 2021-2022 the current inflation rate is lower than it was in the 80s and 90s – though many voters might find this hard to believe. While the recent slow growth in prices is welcome the total increase over the past four years still affects peoples bank accounts. Research by Stanford University economists suggests it can take five years for people to get used to higher prices psychologically.

Gas prices which voters see every day often have a big impact on how people feel about the economy. Political science studies have consistently found that voters give too much importance to them. A key 2016 paper that took into account other economic factors and important news found that a 10-cent rise in gas prices was linked to a 0.60% drop in presidential approval. This makes any sudden increase in oil prices especially risky for the party in power during an election year.

Consumer sentiment scars can take time to heal‚ as the period following the 2008 financial crisis illustrates

Despite all the positive signs why does Harris still trail Trump in most polls about who would handle economic issues better? Consumers are still recovering from the inflation that came after the pandemic. It can take time for consumer confidence to bounce back as we saw after the 2008 financial crisis. The double hit of the pandemic shock and the inflation and interest rate hikes that followed have hurt how consumers feel about the economy and the recovery isnt complete yet.

US household wealth is mainly based on two things: real estate and the stock market. Big market changes in recent years have mostly given way to growth in household wealth but memories of the 2022-2023 market decline may have left lasting effects. However average household wealth can be misleading: while about 65% of Americans own their homes overall wealth is highly concentrated among the top 1% - in 2022 around 10% of US households held about 75% of the wealth. So changes in wealth while affecting the broader population are felt most by those at the very top and may not have much impact on overall voter feelings.

Nevertheless those voters felt much richer when Trump left office partly because government spending to support the economy had unreasonably inflated stock prices. Biden dealt with the aftermath of that spending. Harris however is left with the election challenge