For the next seven months, Trump may be consigned to campaigning in a country beset by a fear of job loss, bankruptcy and disease. It will require a remarkable pivot for the president, who has relentlessly cheered the stock market’s rise and the economy’s strength as the central predicate for a second term.
Many economists say the expected federal stimulus will not prevent a recession. Officials put the price tag of the developing package on Capitol Hill at nearly $1.4 trillion and said that with other measures from the Federal Reserve, the financial rescue could pump $2 trillion into the U.S. economy.
Stocks have already collapsed. Businesses and schools are closing to try to contain the outbreak. Requests for unemployment benefits suggest that weekly layoffs could soon eclipse the worst of the Great Recession as millions of people lose their jobs. Analysts at the bank Goldman Sachs estimate that 2.25 million Americans filed for jobless aid over the past week, a total slightly higher than the job gains for all of 2019.
“Nothing can stop an economic downturn now,” said Aaron Sojourner, a University of Minnesota professor and former White House economist. He said that the major questions confronting lawmakers are how the country can weather a recession, when the widespread quarantines can end and how enough jobs can be preserved to stir a recovery.
The economy and politics have collided in a such a profound way that no one knows how the election will play out in November. Trump’s fate may rest on just how long the downturn lasts and whether Americans judge it to be an outside shock caused by nature or the result of government negligence or incompetence.
“The situation is not good — that is different from saying the president is responsible for it,” said Patrick Ruffini, a Republican strategist. “It is much easier to explain away a deep recession as an act of God.”
Yet voters might not feel all that forgiving.
The administration has repeatedly played down the coronavirus’ health and economic risks. Only a month ago, the top White House economist suggested at a meeting with reporters that an outbreak would do little to harm growth.
“I don’t think corona is as big a threat as people make it out to be,” said Tomas Philipson, acting chairman of the White House Council of Economic Advisers, at the time. “What I can say is that if you look at the resilience of an economy to a public health threat, certainly we have much bigger threats than the coronavirus.”
The lethality of the virus has now overridden such optimism. California and New York are among the states on near lockdown status, and many others are in essentially the same place. Trump himself has abruptly changed his tone, and top federal health officials are now trying to prepare Americans for the soaring number of cases they believe are sure to come.
Trump has relied on his trademark salesmanship, consistently talking about how fast the economy will spring back once the virus wanes, repeatedly speaking in superlatives from the White House briefing room about how pent up demand will generate a positive surge. His words will be measured carefully by voters in little over seven months, when the fallout from the pandemic probably will be clearer. But many economists do not believe the recovery will automatically start like the flip of a switch.
The president anticipates that any downturn — which analysts say could exceed an annualized rate of 10% over the next quarter — would be followed by a snapback to growth. The result is that the line charting U.S. gross domestic product would form a “v” shape.
“I believe in the V-curve,” the president said Thursday. “When this is defeated, this hidden scourge is defeated, I think we’re going to go up very rapidly, our economy, and get back to where it was and beyond.”
That same optimism about a fast recovery followed the housing bust more than a decade ago. Instead, there was a gradual expansion that disappointed many voters and helped usher Trump into the presidency in 2016.
There is a risk this time that the United States could be trapped in a “recession doom loop,” said Glenn Hubbard, a Columbia University professor and the top economist in George W. Bush’s White House when the 9/11 terrorist attacks provoked similar concerns about a slowdown.
Hubbard said many of the proposed stimulus ideas would not help restore growth once the virus subsides. Consumers would benefit from checks that could come to $1,200 per individual. But loans and tax breaks would not replace the lost revenues of many small businesses and manufacturers. This means those companies might stay permanently closed and the recovery would be sabotaged. Half of small businesses surveyed this past week by Goldman Sachs said they can only afford to operate for three months or less.
“That’s the doom loop that I’m afraid of,” Hubbard said. “I think it’s fixable, but it requires more attention than what we’re getting in Washington. This is about making sure the economy can restart.”
Trump’s political survival may well depend on whether that happens.
Yale University economist Ray Fair has developed a model for how the economy impacts elections.
Depending on inflation, Fair’s model shows the majority of votes would go to the Democratic nominee, likely former Vice President Joe Biden, if the economy shrinks over three quarters at an annual rate of roughly 4.4% per person. A decline that steep has occurred seven times since 1952, but never during a presidential election year.
Robert Stein, an economist at First Trust Advisors and a former Treasury Department official, said an election in such a turbulent economy is uncharted territory.
He expects the economy to shrink at an annualized rate of 15% in March and April, hold steady in May and begin to recover in June.
“If you look at traditional models relating economic growth and election results, what’s happening now is not good for President Trump,” Stein said. “But if the downturn is disease or illness-related, my gut — and I’m not saying this as an economist — is the electorate will give you a little more of a pass. But I don’t know. The sample size is zero.”
Trump’s Fate Tied to an Unknown: How Fast Economy Recovers