Tom Haraldsen
The City Journals
Political commentator and pundit James Carville said it best 32 years ago. When it comes to elections, he said, “It’s the economy, stupid.”
That quip from the 1992 presidential election between Democrat Bill Clinton and Republican incumbent George H. W. Bush may well have summed up this year’s race between Donald Trump and Kamala Harris. At least that’s the view that Robert Spendlove, senior economist for Zions Bank, shared with attendees at the Chamberwest Fall Conference on Nov. 13.
“It’s the largest reason why we saw the change last week,” he said, during an election where all seven “battleground states” threw their votes to Trump. “It explains the dramatic shift we saw. All those states flipped or went to Trump. The polls said it was a toss-up in many of those states. The polls got it wrong.”
Spendlove came to the Utah Cultural Celebration Center in West Valley City for the conference on the heels of two other presentations he made earlier that day—one to a group of potato farmers in Pocatello, Idaho, and the other to a room of financial planners in the Salt Lake Valley.
“Their views of the state of the economy were vastly different,” he said. “I surveyed the farmers, and 95 percent of them were very pessimistic about the state of our economy. Conversely, among the financial planners, 80 percent were optimistic about it.” He then surveyed the conference participants who voted using a QR code in the room. The breakdown was 49 percent saying they were very optimistic, 22 percent very pessimistic, with the rest in-between.
“Before the pandemic, people thought the economy was doing well—and then we had the initial shock of the pandemic where that flipped,” he said. “It started to improve again until 2021. Ever since then, people have not felt good about the economy overall.”
Spendlove said that played into this year’s election, where inflation, the economy and immigration were the top-tiered concerns of voters, much more than protection for abortion rights or LGTBQ issues. And voter frustration over economic issues channeled voters away from the Biden administration.
“When we talk about the economy, one thing we look at is interest rates,” he said. “I hear it all the time: ‘The Fed is cutting interest rates, so why aren’t interest rates lower?’ The federal-fund rate is the interest rate that banks charge each other to borrow money overnight. It’s the one rate the Fed directly controls, and that’s where the lowering has occurred. It doesn’t automatically or immediately affect other interest rates.”
He said this has been a period of historic distortion. During the recession of 2009, the U.S. lost 9 million jobs and it took 10 years to recover.
“Feds pushed the federal fund rate down to zero, and it spoiled us into thinking the other interest rates would remain low forever — low mortgage rates, low car loans, easy financing for a startup.”
Spendlove explained that “during the pandemic, they lowered it again and began throwing money at the economy. There was a good reason for it. During that little sliver of 2020, 22 million people lost their jobs in two months. The economy was in freefall, so the federal government stepped in to save it. They pumped in $7 trillion of financial stimulus. That caused our economy to overheat. So in 2021-22, the Feds reversed that from zero to back over 5 percent.”
In September, that rate dropped by one-half percent, then in early November, it dropped another quarter percent. We’re at 4.6 percent, with one more drop expected before the end of the year.
“They project over 2025 that it will come down to 3.4 percent. At least, that’s what they hope,” he said.
The markets thought the rates would be even lower, that the Fed was behind the curve because the economy was slowing. But Spendlove said that since mid-September, interest rates have been trending back up.
“Mortgage rates as of Nov. 11 were at 6.9 percent. Rates are based on the 10-year Treasury note — and long-term rates are usually 2 to 2.5 percent higher than the 10-year note,” he said.
So what happens next? Spendlove said there are three scenarios for the economy.
“The hard-landing scenario is where the economy contracts — we go into a recession or a period where unemployment goes up. The second scenario is the soft landing. It’s where you have the economy slowing but you don’t contract. This is the best-case scenario — what we want to see. But now we’re seeing the no-landing scenario — where the economy continues to accelerate. We continue to see overheating in areas like the labor market or inflation. This scenario means the Fed has to keep rates higher for longer.”
He remains optimistic about the economy, though Utah consumer prices are up about 22 percent since 2020. A lot of factors go into those numbers — the lasting effects of the pandemic, rises in costs for food, fuel and insurance; and the subsequent shortage of affordable housing. Still, Utah is regarded as the best state for fiscal stability and overall economy. But voters are still hurting.
“You can’t tell people that they’re wrong — they are experiencing what they’re experiencing,” he said. “That weighs on how you decide to vote.”
When all was said and done, for those going to the polls, it was the economy that proved the most important issue in determining their voting choices, Spendlove said.
