It would be a worst-case scenario for Vice President Kamala Harris if the economy starts to fall into a recession , a possibility that has recently received more attention.
While most economists still think a recession is unlikely, a lackluster employment report for July, which saw unemployment ticking up for the fourth month in a row, plus a massive stock sell-off on Monday is raising concerns that the economy may quickly turn south. Such a downturn would be a political bunker buster for the Harris campaign, which has gained steam in recent days.
“If this isn’t just a blip and becomes a broader and more severe economic problem, I think it dooms Harris,” Jason Roe, a veteran Republican consultant, told the Washington Examiner on Monday.
Wall Street and global markets suffered major losses Monday, with the Nasdaq plunging by the most in index history shortly after opening, although it recovered some by close. On Monday, the Dow Jones Industrial Average closed down more than 1,000 points, or more than 2.5%, with most stocks in the red.
The Japanese stock market, which is closely tied to U.S. and global companies, also crashed on Monday and notched its worst day since the 1987 Black Monday crash.
Ahead of the Friday jobs report, many economists thought the United States was poised for a so-called soft landing, a scenario in which the Federal Reserve is able to bring down inflation successfully through holding interest rates high while preventing a big slowdown in the labor market.
After the Friday jobs report, however, some economists are pointing out that the risk of a recession has gone up. Goldman Sachs bumped the odds of a recession up to 25% from 15%.
“Indeed, the latest batch of poor macro data sparking the prospect of a U.S. recession, combined with the lingering hawkish stance from the Fed, is discouraging investors from remaining long on riskier assets,” said Pierre Veyret, technical analyst at ActivTrades.
The Friday jobs report triggered a major recession indicator, known as the Sahm Rule, which is when the three-month moving average of the unemployment rate rises half a percentage point relative to its minimum point over the past year. The Sahm Rule has signaled the start of all post-war recessions.
Thomas Mathews, a finance professor at Florida Gulf Coast University, told the Washington Examiner on Monday that some voters might be looking at their portfolios and thinking, “If this is the start of something that is going to be more protracted, then I need to rethink who I want in office.”
The big question now is whether Monday’s bloodbath for Wall Street is an outlier or just the start of worse times to come. Some investors, given the downturn, began betting that the Fed would hold a rare emergency meeting and vote to lower interest rates before its next scheduled meeting in September.
It is unclear how such a move would affect markets. On one hand, it would bring interest rates down, which investors favor. But on the other hand, it would be an acknowledgement that the central bank was wrong and could be seen as a sign of desperation or panic among top Fed officials, which could further spook the markets.
Still, it is unlikely a recession will be declared before the election. There isn’t a single government agency that has the authority to declare a recession. Instead, those in government and most economists look to the National Bureau of Economic Research, a private group, to declare one.
NBER defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months,” although there has been a historical precedent of labeling two consecutive quarters of negative economic growth recessionary.
But if things do get worse and it appears that the U.S. is heading in the direction of a recession, it is clear that it will damage Harris politically. Republicans are already working to tie her to President Joe Biden’s economic legacy, which has gotten very low marks from voters.
Harris received a pop in the polls after Biden announced he was bowing out and would endorse her. Roe, the campaign consultant, said that while Harris’s rollout has been “flawless,” it now faces the prospect of “running head-smack into the economic realities of the Biden economic policies.”
As of Monday, Harris is up slightly in a RealClearPolitics aggregate of five-way polling that includes her, former President Donald Trump, independent Robert F. Kennedy, and two other minor candidates.
Desmond Lachman, a senior fellow at the American Enterprise Institute, told the Washington Examiner that the odds of a recession are growing — bad news for Harris.
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“The risk is really very high,” he said, “because it’s not just the employment numbers. It's also a question that the stock market is tanking. And global markets are really very weak. There's a huge amount of uncertainty, you’ve got all of the geopolitical risk — all of that makes a recession fairly likely.”
“For Kamala Harris, this is really bad news because it will make it very difficult for her to argue that the economy is doing just fine under the Biden administration,” Lachman added.
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