Normally, these events are closely followed by economists and Wall Street insiders. But these aren’t normal times — it’s election season. That means even the most routine reports could force presidential candidates to adjust their messaging on what voters have repeatedly said is their top concern: the economy.For former President Donald Trump and the Republicans, the narrative is clear: Any struggles with inflation or the job market? That’s on the Biden administration.For Vice President Kamala Harris, who joined the top of the Democratic ticket in late July, the economic message requires more finesse. She must acknowledge the public’s frustrations with high prices and inflation while highlighting the Democrats’ success in maintaining a strong labor market and avoiding a recession.
Harris started her campaign trailing Trump on various issues, including the economy. However, in just over a month, her campaign has made significant gains, narrowing the gap, particularly on economic matters.Harris could also benefit from some positive economic developments over recent months.Price increases are slowing down, with July’s Consumer Price Index dipping below 3% for the first time in three years. Another key inflation measure, the Fed’s preferred Personal Consumption Expenditures index, showed a 2.5% year-over-year rise.Americans have continued spending, driving the economy to grow at an annualized rate of 3% in the second quarter. (Although they aren’t thrilled about paying 20% more for goods and services compared to 2020, they haven’t stopped shopping entirely.)If that were the whole story, Trump would have a tougher time criticizing Harris’ and President Joe Biden’s economic record.However, lower inflation comes with a price: The labor market, while still strong, is feeling the effects of the Fed’s aggressive interest rate hikes, which are making it harder for businesses to grow.
In July, unemployment unexpectedly rose to 4.3% from 4.1%, raising concerns about a possible economic slowdown. While layoffs are still historically low, they spiked over the summer, fueling these worries.Skeptics (and many Republicans) saw these cracks and predicted that the recession we’ve avoided for three years is imminent. The unsteady economy could be heading for a hard fall, signaling poor management by the Biden-Harris team. It’s a convenient political angle, but it’s not entirely accurate.The economy is cooling, yes, but that’s intentional.Slowing job growth itself doesn’t mean trouble,” said Aaron Sojourner, a labor economist at the WE Upjohn Institute for Employment Research. “We are close to full employment, so job growth basically has to slow.”The July jobs report, which showed a modest 114,000 jobs added, wasn’t catastrophic. But it was an unexpected slowdown, and during an election season, that makes it easy to exploit.
The overreaction to monthly numbers is the most predictable thing in the world,” said Heidi Shierholz, president of the Economic Policy Institute, a left-leaning think tank. “It feels extra important because there’s an election coming … that seems to add fuel to the overreaction fire.”
Monthly jobs data can be volatile, so it’s crucial to look at the broader trend, Shierholz notes. For most of the Biden administration — and nearly half of Trump’s administration — unemployment has remained below 4%, hovering around historic lows.This Friday, economists expect the Bureau of Labor Statistics to report that the US added 160,000 new jobs last month, with unemployment ticking down slightly to 4.2%.This level of job growth, similar to pre-pandemic averages, would likely ensure a quarter-point rate cut by the Fed when it wraps up its September meeting.But a worse-than-expected jobs report on Friday could bring us back to where we were a month ago when financial markets declined for three consecutive days over concerns that the economy was weakening and the Fed was too slow to cut rates. Markets eventually hit record highs to close out the month, only to drop again on Tuesday following weak manufacturing data.The Fed, like a Tilt-A-Whirl operator, can control the ride’s speed but not how comfortable it is for each passenger (to extend the metaphor). The central bank has raised interest rates to slow things down.If the timing is right, rate cuts starting this month could keep the labor market stable, providing the shaky economy with a steady point to focus on.But if the data doesn’t cooperate, jobs — not inflation — might become the dominant economic topic in the speeches of Harris and Trump.
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