Americans feel better about the economy. Will that help Biden?

Low approval ratings and very low consumer confidence figures have been bothering President Biden for months, a worrying sign for the White House as the country enters a presidential election year. But recent data suggests the tide is starting to turn.

By some measures, Americans have more confidence in the economy than they have had in years. They increasingly expect inflation to continue falling, preliminary data shows, and they think interest rates will moderate soon.

Returning optimism, if sustained, could boost Biden's chances as he pushes for reelection — and spell trouble for former President Donald J. Trump, who is the front-runner for the Republican nomination and has devastated the economic power of the Democratic incumbent . file.

But political scientists, consumer confidence experts and economists alike said it was too early for Democrats to take a victory lap on the latest economic data and confidence figures. Many economic risks remain that could derail apparent progress. Models that try to predict election results based on economic data are currently even pointing to an upset in November.

“We're still very early in the election cycle, from an economic factors perspective,” said Joanne Hsu, head of one of the most cited sentiment indexes as director of consumer research at the University of Michigan. “A lot can happen.”

The University of Michigan's preliminary survey for January showed an unexpected increase in consumer confidence: the index climbed to the highest level since July 2021, before inflation soared. While the confidence measure could be revised – and is still slightly below the long-term trend – it has recovered quickly over the past two months, across age, income, education and geographic groups.

Restoring confidence could help Mr. Biden, said Neil Dutta, an economist at Renaissance Macro, especially if consumer confidence continues to pick up this year as he expects.

If sentiment were to simply remain at current levels, he said the simple historical relationship between consumer confidence numbers and incumbent vote share would give Mr. Biden about 49 percent of the vote. But the job market is strong, gasoline prices are subdued and the stock market just hit a new record high, all of which could lead to further improvement.

Ray Fair, an economist at Yale, has produced the most widely followed model of how the economy influences election outcomes for decades. Are model uses hard economic data – growth and inflation – to predict votes. The latest update suggested Democrats have a 50-50 chance of winning the White House in November, and similar odds in the House of Representatives.

Why is the race predicted to be so close under this model, at a time when economic growth is solid? It comes down to inflation. Voters tend to have long memories when it comes to price increases, Mr. Fair said. They think about how much prices have risen over the course of a president's term, not just the latest inflation numbers.

That means that while prices have risen at a historically fairly normal pace over the past six months, voters will likely remember 2022 and late 2021 when they made a rapid jump.

“Voters are looking further back than that — the fact that the price level is higher than when Biden took office is what voters are picking up on,” Fair said.

That being said, two big surprises Mr. Fair's model came in 2016 and 2020, when Mr. Trump performed less well than would have been predicted based on the state of the economy alone. So it is possible that if such a drag is repeated — if there is what Mr. Fair called a “negative Trump residue” — it will help Mr. Biden garner a larger vote share, even with higher prices. (But there are too few data points to test that possibility, Mr. Fair notes on his site.)

There are also many uncertainties about how consumer confidence and the economy in general will affect the election results this time. There's no question that what happens to the economy matters, says Michael Lewis-Beck, a political scientist at the University of Iowa.

“The role of the economy is as fundamental as it can be: it is like the rivers flowing to the sea,” he said.

But Mr Lewis-Beck pointed out that other factors – such as the sense of isolation that has haunted many people since the coronavirus and the fact that Mr Trump is a former president who voters may view as a “quasi-incumbent” seen – It may be unclear how closely economic data and election results track each other.

Still, what happens to the economy over the next six months will likely influence how Americans feel when voters head to the polls later this year.

If the economy slows, that could be bad for the White House. For example, months of higher interest rates from the Federal Reserve could weigh on growth, or geopolitical unrest in the Middle East could push up gas prices.

But most economists expect the Fed to cut rates and the economy to gradually cool in 2024. Forecasters in a Bloomberg survey expect unemployment to rise by about half a percentage point by the end of the year, while inflation will continue to slow. and that economic growth will moderate but remain positive.

That mildly hopeful outlook could explain why the Biden administration is now bringing up improving consumer confidence data — which has long appeared to lag the improvement in the real economy. Mr. Biden noticed the last jump during a speech on Friday, saying that “we still have more to do,” while also highlighting recent economic progress.

“People are looking at all these things,” Mr Lewis-Beck said. If Mr. Biden wants to convince voters, he must “stick to the message, and I think it will get through eventually.”