Economy bodes ill wind for McCain
HISTORICALLY, ECONOMIC conditions have played an enormous role in presidential elections, even as other factors come into play. Economic downturns are bad news for the incumbent, while expansions tend to lead to reelection. Franklin D. Roosevelt unseated Herbert Hoover in the depth of the Great Depression in 1932. Boom times helped reelect Ronald Reagan in 1984 and Bill Clinton in 1996. For all the money and time and effort that go into campaigning, the results of presidential elections often seem to track basic economic conditions.
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Most election forecasts focus on the national popular vote. But economic conditions often vary significantly from coast to coast. Our model takes account of state-level economic conditions, and thus can forecast the Electoral College results. What matters is the party, not the candidate: The model predicts the share of each state's popular vote that will go to the incumbent party - the Republicans, even though President Bush is not on the ballot - and excludes third-party and independent candidates.
The predictors include two economic factors: National inflation over the 18 months prior to the election and the change in the state unemployment rate over the previous two years. Higher inflation reduces the incumbent party's share of the vote. A higher state unemployment rate also reduces this share, with a 1-percentage point increase reducing the incumbent party's vote share by about 0.8 of a percentage point, for a total swing of 1.6 percentage points.
Generally, voting patterns within a state do not change drastically from election to election. So another component is the share of the vote the current incumbent party received in the state in the previous presidential election - in this case, the share of the two-party vote that President Bush won in 2004.
Our model also tries to measure "incumbent fatigue" - whether the incumbent party has held the presidency for the two prior terms. This will come into play in 2008. That the Republicans have held the White House for the past two terms is expected to reduce McCain's share of the vote by about 7 percentage points per state.
Over the previous seven elections, the model has correctly predicted the winner of each state 86 percent of the time. The model has successfully called the winner of the Electoral College in every election from 1980 on.
The prediction for 2008 is based on Moody's Economy.com's forecasts for inflation and state unemployment rates for the third quarter. Overall, rising inflation, recession, and a worsening labor market will make it very difficult for Republican John McCain to win the election, especially on top of the incumbent fatigue problem.
We expect Obama to win 30 states plus the District of Columbia for 370 electoral votes, far more than the 270 required. Seventeen states are projected to switch from Republican in 2004 to Democratic in 2008. No states are expected to switch from Democratic to Republican. The model predicts that Obama will easily win Massachusetts by a huge margin, collecting 69 percent of the two-party vote.
Based on the model, it will be very difficult for McCain to win. There are five states where the forecast for the Republican share of the vote ranges from 45 percent to 50 percent; these can be viewed as "swing" states for the Republicans. Even if McCain were to pick up all five, he would still fall 57 electoral votes short of victory.
This model has obvious limitations. It focuses on the party, and cannot predict voters' responses to individual candidates. This may be a particular issue this year, where the two candidates have intriguing biographies: Obama would be the first African-American president, while McCain was a Navy pilot and prisoner of war in Vietnam for five years. And the model cannot account for foreign policy. But if our current economic forecast holds, Obama is in good shape heading into November.
Augustine Faucher is director of macroeconomics at Moody's Economy.com in West Chester, Pa.
