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Economics

What to watch for on election night, and beyond

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7 days ago

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THE result of the 2020 presidential election was the slowest to be called since 2000. Covid-19 restrictions, a mass switch to early voting, high turnout and tight margins in swing states led to four anxious days of vote-counting, nail-biting and Twitter-refreshing before Joe Biden was declared president-elect.

Chart: The Economist

This year, given heavy early voting, many expect the counting will be slow again. Officials insist that ballot tallying will be faster. And although the contest is close—with six days to go, The Economist’s forecast model had it as a dead heat—there is a good chance of a decisive victory for either Donald Trump or Kamala Harris, due to a normal polling error. The results could be known just a few hours after polls close—as they were for seven of the past ten elections (see chart).

The first states to conclude voting will be on the east coast. Six states, including the key battleground of Georgia, will finish voting statewide at 7pm eastern time (midnight in London). By 8pm, 19 more states will have joined them and a flurry of data will be published. Readers should exercise caution: little of substance will be revealed at this stage of the night, unless the election is a landslide.

Chart: The Economist

Exit polls will be published in states that have completed counting. Unlike such polls in many countries, the data will not include estimates of candidates’ share of the vote. Instead, these polls include information on the composition of the electorate, their policy views and top issues—none of which will reveal who has won.

In some states, where one candidate is heavily favoured, the election result will be called almost immediately. Unless there is a major upset or a striking trend, these calls may not say much about the election overall. One of the first states to be called in 2020 was Vermont, which Ms Harris is overwhelmingly likely to win. The absence of a call may be more informative: if Virginia is not called soon after polls close, it may indicate that Mr Trump is having a good night. The reverse is true for Ohio.

The first sets of counted votes are unlikely to reveal much, either. In many states, where large urban counties that lean Democratic are slow to count, the vote will appear more Republican than the final tally. In 2020 this effect was compounded in some states by mail-in ballots (which skewed Democratic) being slowest to count. Hence the “blue shift” phenomenon: Republican vote leads wiped out by late-counted Democratic ballots, fuelling false claims of electoral fraud.

So what will be the first solid pointers on election night? One metric to watch is the change between county-level results in 2020 and 2024 (this will appear on each state’s results page on economist.com). By comparing counties which have completed their tallies, we can measure the change in support for each party’s candidate.

For example, in a key state such as Pennsylvania—with 67 counties—the early results might come from a selection of counties that Mr Biden won by ten percentage points in 2020. Suppose those counties show Ms Harris winning by five points. If that shift were replicated across the state, Mr Trump would be on track to win Pennsylvania as a whole by four points (Mr Biden won it by one point in 2020).

When the first states conclude counting, we will get more clues as to how the election has panned out. Florida finished counting before midnight eastern time in 2020. Although the state is not likely to be competitive (our forecast gives Ms Harris a five-in-100 chance of an upset), it could still indicate who has the upper hand. Using simulations from our forecast, we can see how the result in Florida relates to Ms Harris’s chances of winning overall. If she loses Florida by seven percentage points, she has a one-in-two chance of winning the presidency. If she loses the state by more than 11 points, her chances of winning the election sink below one in five.

Both of these measures are imperfect. The first counties and states to tally their votes may be unrepresentative. In 2020 Florida moved two points towards Mr Trump whereas the country as a whole moved two points towards Mr Biden.

The final result will probably come down to seven key states. In our forecast, Ms Harris has a 93% chance of becoming president if she wins Pennsylvania, for example, and Mr Trump has a 95% chance if he wins Michigan. Of the seven states, Georgia and Michigan may be the fastest to count. Georgia has mandated that results from early voting (around 70% of Georgia’s total vote) must be announced by 8pm eastern time. Michigan has changed the law to allow the processing of early votes before election day, speeding up the tally compared with 2020. North Carolina is also traditionally quick to count but may experience disruption due to Hurricane Helene.

Others could well be slower. Pennsylvania, the most likely pivotal state according to our forecast, will not start processing millions of postal ballots until the morning of election day. Arizona and Nevada, in the west, finish voting later that day and take longer to count their mail-in ballots, which are popular in both states. Nevada accepts and counts ballots which arrive after election day, too (although these are unlikely to flip the state).

The timing of the final call will depend on how close the election is. In 2000, when the presidency was decided by just over 500 votes in Florida, it took weeks to determine the result. In 1984, when Ronald Reagan won by a landslide, the result was called at 8pm eastern time, while voters on the west coast were still casting ballots. A decisive victory for either candidate would reduce the opportunities for spurious litigation and election denialism—a pastime of Mr Trump’s which may slow the announcement of the final result.

Eyes on the prize

The median scenario from our forecast has Ms Harris winning her pivotal 270th electoral-college vote by less than half a percentage point. But there is also a substantial chance of a polling miss of a scale that would give one or other of the candidates a comfortable win. In one in six scenarios from our forecast, the winning margin in the pivotal state is greater than five points—matching Barack Obama’s re-election in 2012. If that were to happen, we would probably have a clear indication early in the night (the 2012 election was called before midnight eastern time). In three out of four forecast scenarios, the margin of victory in the pivotal state is larger than Mr Biden’s in 2020.

The tail risk of election-night becoming election-week or election-month is still significant. If the presidency comes down to a few thousand votes in Wisconsin or Pennsylvania—the central estimate of our forecast—it could take weeks to resolve. Election interference could extend the wait even further. But there is also a fair chance that the result is known sooner than many expect. Election-watchers, adjust your sleep schedule accordingly. ■

Stay on top of American politics with The US in brief, our daily newsletter with fast analysis of the most important electoral stories, and Checks and Balance, a weekly note from our Lexington columnist that examines the state of American democracy and the issues that matter to voters.

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Economics

Democrats need to understand: Americans think they’re worse

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7 hours ago

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November 6, 2024

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If you think Donald Trump is too crass or cruel or incompetent to be president—if you are disappointed or even astonished that, having tried and failed to subvert the will of the people in the last election, he has come back to win fair and square—you should be asking yourself this question: why, to so many Americans, does the Democratic Party seem worse?

This victory is a tremendous achievement for Mr Trump, who after his loss in 2020 and the attack on the Capitol on January 6th 2021 was counted out even by leaders of his own party. At the time Mitch McConnell, the Senate Republican leader, who privately regarded Mr Trump as “a sleazeball” and “stupid”, called the insurrection “further evidence of Donald Trump’s complete unfitness for office”, according to reporting he has not disputed in a new biography by Michael Tackett, a journalist.

Yet what might seem a psychological frailty—an inability to brook criticism or concede mistakes, much less defeat—has for Mr Trump been a mighty source of political strength, one that intensifies his connection to the voters he has made the base of the Republican Party. As in 2016, Mr Trump wielded his command of that bloc of voters this year to clear a path through crowded Republican primaries, and then relied upon “negative polarisation”, or fear of the other guys, to unite the party. “Can you believe he endorsed me?” Mr Trump chortled at a rally in North Carolina on November 3rd, gloating over how Mr McConnell eventually fell into line. Mr Trump felt no obligation to reciprocate. “Hopefully we get rid of Mitch McConnell pretty soon,” he said.

Mr Trump has shown courage, not only in weathering assassins’ attacks but in insisting on views on trade, entitlements and other matters that a few years ago were heresy within his party. With his sophisticated grasp of new and legacy media and his instinct for the basic needs and fears of many Americans, he has revolutionised how American politics is conducted and shifted the policy terrain over which it is waged. In terms of disrupting what came before, he has had more effect than even Ronald Reagan.

Unlike Reagan—or the other two-term presidents since, Bill Clinton, George W. Bush and Barack Obama—Mr Trump has never been very popular, though he managed, in this third run as the Republican nominee, at last to win the popular vote. Unlike those predecessors, Mr Trump has relied upon division, not addition, for his electoral maths. In his first term his average approval rating of 41% was the lowest ever measured by the Gallup Poll, which began tracking the statistic under Harry Truman. Democrats have good reason to think Mr Trump repels many voters when he calls adversaries “vermin” or “the enemy from within” or says illegal immigrants are “poisoning the blood of our country”.

Yet, after this victory, whatever disdain Democrats have for Mr Trump should be cause only for humility and self-scrutiny. As in 2016, Mr Trump’s broad support will present his adversaries with a Rorschach test in which they can see their preferred image of America, and it will be ugly. For some, white supremacy and misogyny will explain Mr Trump’s success, while others may attribute it to tax cuts and greed. Some will conclude that poor, non-white or female Americans have been ensorcelled into voting against their self-interest. Rather than retreat into some grand theory, they would so better ro think through how, in a divided country, President Joe Biden might have nudged the balance a few points away from Mr Trump, rather than to him. Kamala Harris was no bystander, but pime responsibility lies with the president she served.

Mr Biden did not heed his own warnings about Mr Trump. He tried to eat into Mr Trump’s support with blue-collar workers through giant investments in manufacturing and infrastructure that offered something to everyone. But, unlike Mr Clinton or Mr Obama, he ducked choices that would have respected the concerns of most Americans but disappointed left-wing Democrats. A political strategy of addition still requires some division.

Most egregious, Mr Biden resharpened Mr Trump’s most effective political wedge by doing away with obstacles he had created to illegal immigration, with no alternative. By the time he restored some of Mr Trump’s restrictions this spring, more than 4m migrants had crossed the southern border, compared with fewer than 1m under Mr Trump. That was terrible for the Democrats as a party, and worse for people they want to help and the cause they believe in: under Mr Biden, Americans who say they want a decrease in legal immigration rose from a minority to a majority, as did the number who favour mass deportation.

How to defend democracy

Even where Mr Biden had accomplishments that undermined Mr Trump’s arguments, he let himself be constrained by his party’s loudest activists. Oil production rose to record levels, but Mr Biden did not boast about that. He was also no longer up to the demands of presidential communication that Mr Trump understands so well. He was not constantly, energetically promoting his success in sustaining economic growth and raising wages. His approval rating sagged as low as 36% just asother Democrats were forcing him to face the obvious: he should not be running again. In the short time Ms Harris had, she waged a good campaign. But any politician would have struggled under such burdens. She could not separate herself enough from Mr Biden, or from the video Mr Trump’s ads used, to devastating effect, of her recently declaring positions that were alienating to most Americans.

“We have learned again that democracy is precious,” Mr Biden proudly declared during his inaugural address almost four years ago. “Democracy is fragile. And at this hour, my friends, democracy has prevailed.” Now it has prevailed again. Will Democrats get the message this time? ■

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Economics

The Fed is likely cutting rates again Thursday. Everything you need to know

Published

14 hours ago

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November 6, 2024

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Federal Reserve Board Chairman Jerome Powell holds a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, U.S., September 18, 2024. REUTERS/Tom Brenner

Tom Brenner | Reuters

The Federal Reserve likely will stick to the business at hand when it wraps up its meeting Thursday with another interest rate cut, but will have its eye on the future against a backdrop that suddenly has gotten a lot more complicated.

Financial markets are pricing in a near-certainty that the central bank’s Federal Open Market Committee will lower its benchmark borrowing cost by a quarter percentage point as it seeks to “recalibrate” policy for an economy that is seeing the inflation rate moderate and the labor market soften.

The focus, though, will turn to what’s ahead for Chair Jerome Powell and his Fed colleagues as they navigate a shifting economy — and the political earthquake of Donald Trump’s stunning victory in the presidential race.

“We think Powell will refuse to give any early judgment on the implications of the election for the economy and rates, and will seek to be a source of stability and calm,” Krishna Guha, head of global policy and central bank strategy at Evercore ISI, said in a a note issued before the election’s outcome was known.

In keeping with policymakers’ historical desire to stay above the political fray, Powell “will say the Fed will take the time it needs to study the new administration’s plans” then will “refine this assessment as actual policies are developed and enacted,” Guha added.

So while the immediate action will be to stay the course and enact the cut, which equals 25 basis points, the market’s attention likely will turn to what the committee and Powell have to say about the future. The fed funds rate, which sets what banks charge each other for overnight lending but often influences consumer debt as well, is currently targeted in a range between 4.75%-5.0%.

Market pricing currently favors another quarter-point cut in December, followed by a January pause then multiple reductions through 2025.

Preparing for Trump

But if Trump’s agenda — tax cuts, higher spending and aggressive tariffs — comes to fruition, it could have a meaningful impact on a Fed trying to right-size policy after the mammoth rate hikes aimed at controlling inflation. Many economists believe another round of isolationist economic moves from the president-elect could reignite inflation, which held below 3% during Trump’s entire first-term despite a similar recipe.

Trump was a frequent critic of Powell and the Fed during his term, which ran from 2017-21, and is in favor of low interest rates.

“Everyone is on the lookout for future rate cuts and whether anything is telegraphed,” said Quincy Krosby, chief global strategist at LPL Financial. “Also, however, there’s the question of whether or not they can declare victory on inflation.”

Any answers to those questions would be largely left to Powell’s post-meeting news conference.

Though the committee will release its joint decision on rates, it will not provide an update on its Summary of Economic Projections, a document issued quarterly that includes consensus updates on inflation, GDP growth and unemployment, as well as the anonymous “dot plot” of individual officials’ interest rate expectations.

Beyond the January pause, there’s considerable market uncertainty about where the Fed is heading. The SEP will be updated next in December.

“What we’re going to hear more and more of is the terminal rate,” Krosby said. “That’s going to come back into the lexicon if yields continue to climb higher, and it’s not completely associated with growth.”

So where’s the end?

Traders in the fed funds futures market are betting on an aggressive pace of cuts that by the close of 2025 would take the benchmark rate to a target range of 3.75%-4.0%, or a full percentage point below the current level following September’s half percentage point cut. The Secured Overnight Financing Rate for banks is a bit more cautious, indicating a short-term rate around 4.2% at the end of next year.

“A key question here is, what’s the end point of this rate cut cycle?” said Bill English, the Fed’s former head of monetary affairs and now a finance professor at the Yale School of Management. “Fairly soon, they’ve got to think about, where do we think this rate cut period changes with the economy looking pretty strong. They may want to take a pause fairly soon and see how things develop.”

Powell also may be called on to address the Fed’s current moves to reduce the bond holdings on its balance sheet.

Since commencing the effort in June 2022, the Fed has shaved nearly $2 trillion off its holdings in Treasurys and mortgage-backed securities. Fed officials have said that the balance sheet reduction can continue even while they cut rates, though Wall Street expectations are for the run-off to end as soon as early 2025.

“They’ve been happy to just kind of leave that percolating in the background and they probably continue to do that,” English said. “But there’s going to be a lot of interest over the next few meetings. At what point do they make a further adjustment to the pace of runoffs?”

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Economics

Donald Trump wins big and fast

Published

21 hours ago

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November 6, 2024

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IT IS AN extraordinary comeback—or, as Donald Trump triumphantly put it in West Palm Beach, Florida, in the early hours of November 6th, “a political victory that our country has never seen before”. After losing four years ago he has survived impeachment, conviction as a felon, numerous other indictments and two assassination attempts, and will become America’s 47th president, to add to his stint as the 45th. He becomes the oldest man ever to win the White House.

Many had expected a long wait for the result of an extremely close election to become clear. In the event, the outcome was evident within hours. Mr Trump looked set to win all seven of the critical swing states: he triumphed in North Carolina, Georgia, Pennsylvania and Wisconsin, and had strong leads in Michigan, Arizona and Nevada. That translates into a decisive advantage in the electoral college.

It appears that Mr Trump was able to draw support from both urban and rural voters at levels notably higher than in his contest against Joe Biden in 2020. In state after state, Mr Trump performed better than he had in 2020. In Florida, for example, where he won by three percentage points last time, his margin is on track to surge to 12 points. And although opinion-poll aggregates had consistently shown Kamala Harris to be ahead in the national popular vote, it seems that Mr Trump may have won that too. Just as in 2016 and 2020, in other words, the polls underestimated Mr Trump’s support.

What went wrong for Ms Harris? For one thing, her advantage among women voters, on whom Democrats were pinning their hopes, turned out to be smaller than expected. The gender gap, between the votes of men and women, actually narrowed, from 23 points in 2020 to 20, according to exit polls. Among Hispanic voters, Mr Trump made striking inroads, improving his margin by ten percentage points compared with 2020, according to CNN’s exit poll. The trend was particularly strong among Hispanic men: Joe Biden won their vote by a margin of 23 points; this time Mr Trump was on track to prevail among them by a margin of ten points. More broadly, dissatisfaction with high inflation and immigration contributed to a sense among voters that the country was on the wrong track, for which they naturally blame the incumbent. Much as Ms Harris sought to present herself as the candidate of change, she was stuck with her association with the current administration.

As well as the White House, the Republicans also wrested back control of the Senate. It was always going to be hard for Democrats to hold on to their slender majority in that chamber, given that they were defending a disproportionate number of seats (a third of which are up for election in each election cycle). Not only did Republicans take the vacant seat in West Virginia, as expected; they also flipped Ohio and Montana and prevailed in a close contest in Nebraska. The upsets Democrats hoped for in Florida and Texas failed to materialise. Republican control of the Senate smooths the way for Mr Trump to make important appointments—from cabinet secretaries to generals to Supreme Court justices—that require Senate confirmation.

Whether the Republicans complete their sweep by retaining control of the House of Representatives is still not clear. Results in California, to arrive later, will determine that. But Mr Trump, in his victory speech, was confident that the House would be his, too.

“This will truly be the golden age of America,” he declared. Few will question that the country is indeed entering a new age. Whether Mr Trump will truly “heal” America, as he promised, is more debatable. Beyond America’s borders, too, the consequences are momentous. From tariffs to climate change to Ukraine, the world must brace itself for Trump II.■

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