(NEW YORK) — Stock market gyrations this week came after a disappointing jobs report stoked concerns about an economic slowdown. The uncertainty drew heightened attention as the U.S. speeds toward this fall’s presidential election.
However, the economy has been gradually cooling for months, alongside falling inflation. The U.S. has repeatedly defied previous warnings of an impending recession, though economists disagree about whether current conditions pose an impending risk.
What is certain is that the economic outlook carries murky implications for the contest between Vice President Kamala Harris and former President Donald Trump, experts told ABC News.
A stretch of market turmoil in August will not meaningfully impact the outcome of the election, experts said, nor would a mild economic cooldown over the coming months. However, they added, an acute bout of economic weakness would damage prospects for Harris.
“On balance, it’s a wash in terms of the economic impacts on election prospects,” Stephen Roach, senior fellow at the Paul Tsai China Center at Yale Law School, who previously spent three decades working at Morgan Stanley. “It would take a much more severe downturn to begin to have a negative impact on the quasi-incumbency that Kamala Harris brings to the campaign.”
The recent stock market downswing was sparked by a disappointing jobs report on Friday. Employers hired 114,000 workers in July, falling well short of economist expectations of 185,000 jobs. On Monday, the S&P 500 suffered its worst trading session since 2022. The index has since recovered nearly all of those losses.
The unemployment rate has increased this year from 3.7% to 4.3%, its highest level since 2021. That trend has triggered a recession indicator known as the “Sahm Rule,” which says that a rise of 0.5 percentage points in the unemployment rate within a 12-month period typically precedes a recession.
However, the labor market is still growing and the unemployment rate remains at a historically low level. Meanwhile, U.S. gross domestic product grew at a solid rate over three months ending in June, accelerating from the previous quarter and exceeding average growth in 2023.
“People aren’t micro-focused on what happens during two days in August when the election is in November,” Jon Krosnick, a professor of political science at Stanford University who studies perceptions of the economy, told ABC News. “There’s a lot of reason to say, ‘Let’s not get worked up yet.’”
However, a potential acceleration of the economic cooldown poses a risk for Harris, according to the experts.
Over the past year, the Federal Reserve has held interest rates steady at their highest level since 2001. Those high borrowing costs have weighed on consumers and businesses, slowing price increases while cooling the job market and putting the U.S. at risk of a recession.
Fed Chair Jerome Powell last week indicated that the central bank may cut interest rates at its next meeting in September. Such a move is widely expected by investors.
A sharp rise in the unemployment rate over the coming months could imperil prospects for Harris, Francesco D’Acunto, a Georgetown University finance professor who studies how people understand economic news, told ABC News.
“It’s really important for the Democratic ticket that the labor market is resilient until at least the election,” D’Acunto said, noting that he considers an imminent recession unlikely.
Ray Fair, a professor at Yale University who oversees a model that forecasts elections based on economic conditions, told ABC News that the election outlook has remained largely unchanged since the beginning of the year.
An update of the election forecast last month, only a few days after Harris replaced President Biden on the Democratic ticket, put Harris in a virtual tie with Trump. “From an economic point of view, the election is very close,” Fair said, noting that a mild economic slowdown had favored Republicans while falling inflation had benefited Democrats.
It would take a severe economic downturn over the coming months for that outlook to change, Fair said.
On Sunday, Goldman Sachs economists raised the probability of a U.S. recession in the next year from 15% to 25%.
D’Acunto, of Georgetown University, said enough time remains for economic performance to shift the election prospects for Harris or Trump. But, he added, it is unlikely that conditions will change to the degree that would be necessary.
“Of course, it’s very hard to predict what will happen,” D’Acunto said.
Copyright © 2024, ABC Audio. All rights reserved.