Why Do Voters Seem to Be Giving Trump a Pass on the Economy?

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The best thing the president has going for him right now is the economy, which doesn’t sound great for him, since the economy is terrible right now. But his approval ratings on the economy are not terrible. Even polls showing Trump far behind in the election often show him with an advantage on the economy — even the new Quinnipiac national poll, which finds Trump trailing Joe Biden by ten points among likely voters, finds that respondents are four points more likely to say Trump would be better at handling the economy than Biden.

The obvious question is: Why? One obvious answer is that many voters don’t blame Trump for the economic trouble: Its root cause is the coronavirus pandemic, which is global in its impact. I believe the president’s mistakes in fighting the epidemic have cost lives and will, in the long run, lower economic output by some amount. But it’s not obvious exactly how much of the economic trouble should be ascribed to his failures. And many of the president’s errors have been borne out of an over-eagerness to return to business as usual — which serves as a public demonstration of his desire to grow the economy, if not his efficacy at doing so. I would also note that the economic situation is worse in New York, a city whose economy relies heavily on in-person services, than it is nationally — and a lot of economic commentating is done from New York, so the average commentator is personally observing a worse economy than the average voter.

But I want to focus on another reason voters would give the president a pass on the economy: While there is big trouble at the macroeconomic level, household finances are good on average and better than they were before the pandemic. American personal income rose sharply during the spring and early summer because of stimulus payments, enhanced unemployment insurance, and forgivable PPP loans to small businesses. At the same time, consumer spending fell sharply, as Americans adopted en masse the sort of practices that Suze Orman might suggest to a financially struggling caller: no restaurant meals, no vacations, no specialty coffee beverages.

Americans spent 18 percent less than normal in April; by July, spending was still about 7 percent below what you would have expected if pre-pandemic trends had continued. Meanwhile, disposable personal income (that is, income minus taxes) was 13 percent above normal in April and still about 5 percent above the pre-pandemic trend in July, when the full $600-weekly enhancement to unemployment benefits was still being paid. Low consumer spending has been a huge problem for businesses, especially in sectors like travel and hospitality, but it combined with higher incomes to mean huge personal saving: Americans normally save about 7 to 8 percent of their disposable personal income, but that rate rose to 34 percent in April and was still 18 percent by July. As a result, American households set aside more than $1 trillion in additional savings from February through July, compared to what you would expect in a normal six months.

Those additional savings showed up as healthier household finances in the Federal Reserve’s survey on the economic well-being of U.S. households, conducted in July. One question the Fed routinely asks is how the respondent would pay an unexpected $400 expense — 70 percent of respondents said this July they would use cash or an equivalent payment method, up from 63 percent in October 2019. For people in households that had been making less than $25,000 as of last October, that figure rose from 34 percent to 45 percent — even though many of those households suffered job losses.

“Improvements in preparedness for emergency expenses since 2019 were greatest among low- and middle-income families, for whom stimulus payments and enhanced unemployment insurance benefits reflect a larger share of incomes,” the Fed noted.

More subjective measures of financial well-being were about flat rather than improved: 77 percent of respondents this July said they were doing at least “okay” financially, up from 75 percent in October — not bad for the aftermath of a historically large drop in economic output and rise in unemployment. The trend in results on that question was about flat no matter what demographic you looked at — low or high income, rural or urban, and across ethnicities.

Of course, the data I’m discussing here are through July; for most of the relevant data series, that’s the most recent reading we have. Soon we will know how these numbers look in August, and incomes will surely have been down sharply, with the expiration of enhanced unemployment benefits. (Though the ad hoc $300 enhancement the president pushed through executive action, now available to some unemployment recipients in some states, means the drop in income won’t be as large as initially feared.) But the subjective survey responses look to be holding up in more recent polling. Tuesday’s Des Moines Register poll of Iowa, conducted by Ann Selzer, had a particularly striking stat: In spite of everything, only 15 percent of Iowans say they’re worse off financially than they were four years ago. Forty-one percent say they are better off.

There are some reasons the sanguine public views on the economy would survive the reduction in unemployment benefits. One is that all that saving during the spring and summer created a substantial financial cushion for many households now receiving lower benefits, especially as household spending continues to be below normal. Another is that many Americans are back at work: In that Fed survey, 40 percent of people who reported having been laid off at March said they were employed by July, while another 37 percent expected to eventually return to the job they had been laid off from. Job growth continued in August and is likely to do so in September also. A lot of people have worked all the way through the pandemic, while cutting back on consumption, and therefore have especially healthy finances. And those who own stock — about half of American adults — have seen their investments recover most of the losses suffered in the market crash that culminated in mid-March.

Of course, a disconnect between household finances and the broader economy cannot persist forever. The last six months have been dire for many small and large businesses, and a significant subset of them will close or have closed permanently. Those businesses have owners and workers whose ability to spend will obviously be hurt by those closures. But the flip side of the disconnect is that strong household finances can be an engine for economic recovery that will save many of those businesses. All that saving means American consumers have the capacity to patronize those businesses when they feel it is safe and enjoyable to do so — although that spending capacity will somewhat diminish over time if high unemployment persists without robust benefits to protect household balance sheets. This is a reason for Congress to move another round of economic support legislation after the election if it is not possible to reach an agreement before.

Finally, I would note that the economy is not everything politically. That same Iowa poll that found Iowans broadly satisfied with their household finances also found Trump and Joe Biden tied in the state — a state that Trump won by nine points in 2016. Voters are looking at their wallets, delivering a surprisingly satisfied verdict on their finances, and giving Trump some credit for his handling of the economy. But that doesn’t necessarily mean they will vote to reelect him.