Tag Archives: GDP

The GDP Numbers Are In – Do They Say Obama Will Win?

The much awaited second quarter GDP growth figure came out yesterday and, while it wasn’t a disaster, neither was it particularly good sign for the economy – or for President Obama’s reelection chances.  The government’s first estimate (they often revise the figure as new data comes in) is that GDP grew at an anemic 1.5% – a .5% drop from first quarter growth, and only half of the growth rate experienced during the last quarter of 2011.   This downward trend line is not what an incumbent president wants to see heading into an election.

As you know from reading my previous posts, GDP growth is one way of measuring one of the key “fundamentals” – the state of the economy – that I have been arguing is far more important to the election outcome than the Bain controversy or Obama’s verbal “gaffes”.  But it isn’t the only factor influencing the election, and so we shouldn’t overstate its significance either.  Peter Cahill has gathered data on second quarter GDP growth in every election year dating back to 1948, and correlated it with the actual share of the major-party vote won by the incumbent presidential party’s candidate.

Think of the trend line as the “real” linear relationship between GDP growth and vote share. If we plug 1.5% into the equation defining that line, it predicts that Obama will get about 50.3% of the two-party vote come November based on 2nd quarter GDP growth alone.  However, as you can see from the graph, while higher GDP growth generally correlates with a greater vote share, the relationship is not perfect; GDP growth only explains about 36% of the variation in vote share.  So a lot of other factors are going to come into play.  What are they?  As I discussed in yesterday’s post for the Economist’s DIA blog, Emory political scientist Alan Abramowitz’ “Time for A Change” forecast model adds three additional variables to second quarter GDP growth: the incumbent’s net approval (approval minus disapproval) in the Gallup poll at the end of June, how long the incumbent’s party has held the presidency and – in a recent innovation – a “polarization” term that takes into account the increased polarization of the electorate since 1996.  With yesterday’s GDP release, all the figures are in place for Abramowitz to predict Obama’s share of the major party vote come November.

Drum roll please!

By plugging the relevant numbers into the Abramowitz forecast equation, it spits out Obama’s predicted share of the major party vote come November as 50.5% – not much different from our estimate based only on second-quarter GDP growth. Based on the confidence interval around this prediction, Abramowitz estimates that if history holds Obama has about a two-thirds probability of winning the election.

This is an estimate, mind you, based on data from a small number (16!) of previous presidential elections.  But I would argue that it is better than a guess – Abramowitz’s model has performed generally quite well in out-of-sample forecasts, coming within 1.5% of the actual vote about three-quarters of the time. On the other hand, I  wouldn’t bet my kid’s tuition, based on this one model, that Obama will be victorious.  In short, it is telling us what pretty much every other  indicator suggests: that this is going to be a very, very close election but that Obama can be considered a very slight  favorite.

So, does this mean the outcome is already in the bag, and that what happens from here on out doesn’t matter.  Not at all.  Campaigns do matter – see my previous posts here and here.  And in terms of consequences, in such a close election,  they arguably matter even more this time around.

Abramowitz’s model, of course, is only one of several constructed by political scientists and, as I discussed in my Economist post, his recent change to his model is not sitting well with everyone. (I’ll discuss this in a separate post.) By my count, there were more than a dozen econometric-based forecast models in 2008.  Although they were all, save one, able to predict Obama’s victory, they weren’t equally reliable in forecasting the actual popular vote (although they did pretty well in the aggregate). And, of course, as we get closer to the actual election,  none of them will be as reliable as simply aggregating the public opinion polls, which is what Sam Wang, Nate Silver and others will end up doing.  So why discuss them at all?  Because the best ones remind us that there is a context to this election which largely determines how it will turn out.  And right now that context is saying that this election may be too close to call.

A Turning Point In The Election?

The reaction – or lack thereof – among voters to the Bain controversy once again illustrates an important distinction between how partisan pundits (you know to whom I’m referring) and political scientists analyze what drives election results.  As the controversy over when and to what degree Romney severed his connection with Bain dominated the news, Romney’s partisan critics were convinced that the story would negatively impact Mitt’s electoral support.  The Daily Dish’s Andrew Sullivan, tweeting the link to his longer analysis, wondered: “The GOP’s current candidate is an obvious perjurer and thereby a felon. How long will it take before this sinks in?”  Jonathan Cohn, citing the Obama campaign’s “devastating ad” [based on the Bain controversy], concluded that “substantively speaking, this controversy is largely telling us something we already knew: That Romney helped develop and then employed business practices that generated large profits for investors, made companies more efficient, and frequently led to layoffs.”  TPM’s Josh Marshall confidently opined “We can spin these out forever. But beyond all the specific accusations, they’re painting a picture that makes Romney look ridiculous, like a joke. They’re making Romney look stupid and powerless on the front where he believes he’s one of the standouts of his generation. And that’s plain lethal for a presidential candidate. But how does it come into play? Simple. Mitt Romney has two claims on the presidency: successful governor of major state and captain of industry. He’s largely written off the first by disavowing a genuine and perhaps far-reaching accomplishment: health care reform. Which leaves him with Bain Capital.”

Regular readers of these partisan blogs could be excused for expecting that the fallout from Bain would have a significant effect on Romney’s standing in the polls. (I trust I need not give you a Kevin Drum quote?) And, in fact, polls indicate the Bain controversy had some negative impact on whether voters viewed Romney’s business record as a reason to vote for him. But while Romney’s critics were touting this finding, they were generally ignoring the bigger polling picture, which is that the Bain controversy did not seem to affect the candidates’ relative standing in the national polls at all, much as I suspected it wouldn’t. Indeed – and I wouldn’t make too much of  this given the rampant polling fluctuations to date – the Real Clear Politics aggregate poll suggests that Mitt may have gained ground during the time of the Bain/income tax debate.

The fact that potential voters could change their attitude toward the relative worth of Mitt’s business experience, but not whether they are likely to vote for him drives home a point I’ve made repeatedly, but one which partisan pundits overlook: this election will be largely a referendum on President Obama’s handling of the economy. For most undecided voters, the choice whether to vote for Romney will turn less on his Bain record, or how far back he goes in releasing tax forms, and more on Obama’s economic record.

In that vein, the topic of this Wall St. Journal story is likely to have a bigger impact on the November election than are any of Mitt’s tax documents.  Less than a week before the first estimate of second quarter GDP growth figures are released this Friday, a survey of economists indicates that they believe the numbers will show worse growth – close to 1.2% – than the 1.9% in the previous quarter, and the slowest rate of growth since the first quarter of 2011.

As I’ve discussed previously,  GDP growth is an important variable in many of the economy-driven econometric presidential forecast models (see here and here and here).  If these GDP numbers hold in the less-than-1.5% growth range, most of those models suggest Obama will get less than a 50% share of the two-party vote come November, although how much less varies by model – and by what the third quarter GDP number – and the final number before the election – shows. Of course these models are not foolproof, and there is always the chance that the election will turn on some idiosyncratic factor that may prove determinative.  Karl Rove has always insisted that the last minute release of court papers documenting George W. Bush’s DUI arrest on the eve of the 2000 presidential election cost Bush close to 2% of the popular vote through a combination of reduced turnout and the loss of some independents to Gore, as well four states in the Electoral College. Had the arrest not been publicized, he argues, Florida would not have mattered.  Whether Rove is correct or not, I have said repeatedly that in a close election there is room for an “October surprise” to make a difference.

But it is far more likely, I think, that the outcome will turn on perceptions regarding the state of the economy, as measured by GDP growth, among other factors.  Which makes Friday’s release of the first estimate of the second quarter GDP figure potentially far more important than Mitt’s tax returns. And if that number suggests growth is slowing, and the third quarter GDP number that will come out in October shows even slower growth, the President may have to pin his reelection hopes on an October surprise – and a very big one, at that.  This is not, of course, what partisan pundits will have you believe.  But it is what the historical record suggests to be true.

4:10 P.M.  Consistent with some of my earlier posts, Rasmussen finds that among undecided voters, only 13% are paying attention to the campaign – another reason why  Bain and the tax documents simply aren’t having the impact partisan pundits had predicted.