Trump's Economy Has Started Falling Apart-- Especially In The Midwest

Jennifer Christie is the progressive Democrat in the race to fill the open seat for the congressional district north of Indianapolis. "Trump’s economy," she told us this morning, "is unsustainable for my district. We are a rural and suburban district that depends on agriculture and innovation. His tariffs hurt farmers, businesses, and consumers. Furthermore, Trump’s failure to invest in infrastructure and green technology stifle opportunity in our district. Our district is filled with people in agriculture, biotech, and technology who would thrive in an economy that works to solve the climate crisis through innovation and has thoughtful trade policies. Our manufacturers, who would also benefit greatly from focused investments to act in climate, are really struggling. The UAW recently striked in our district; We once had thousands more GM employees here than we do now. Although that decline has been happening for a while, we need a change." Early yesterday, Trump starting tweeting about how great the stock market is doing. That doesn't mean much for many people in the base that put him into the White House. In fact, in many of the states that flipped from Obama to Trump, his favorability is underwater-- and by some deep underwater. Morning Consult's state by state Trump Tracker:

• Iowa- minus 14 (22 point decrease)
• Wisconsin- minus 11 (17 point decrease)
• Michigan- minus 10 (18 point decrease)
• Pennsylvania- munis 8 (17 point decerase)
• Ohio- minus 5 (10 point decerase)
• North Carolina- minus 3 (21 point decrease)
• Florida- minus 2 (23 point decrease)

That's 114 electoral votes.

All 7 of these "Trump states" have big agricultural economies and Sunday night we took a quick look at how Trump's trade policies have wrecked that sector. At the same time, the Washington Post was preparing to publish a piece by Andrew Van Dam and Heather Long, Unemployment Is Climbing In key Swing State, Including Michigan and Wisconsin, about how unemployment is starting to set in in some of these states. "Nationally," wrote Van Dam and Long, "the economy looks healthy, with solid growth, stocks at record highs and an unemployment rate of 3.6 percent, near historic lows. But unemployment isn’t falling for everybody. New data released last week by the Labor Department reveals just how many places are struggling. In more than 1,000 counties, or about one in three, the unemployment rate is higher than it was a year ago. That includes all 72 counties in Wisconsin and all 10 in New Hampshire, as well as most in Michigan, Minnesota and North Carolina. The numbers can be volatile from month to month, but this trend remains even if you look at entire quarters or years. Marinette County is a good example. At about 4 percent, its unemployment rate remains low by historical standards. But it has risen a full percentage point in the past year."

Marinette County is in northeast Wisconsin. In 2016 the folks there were looking for change. The Democratic Party establishment tried feeding them Clinton and Bernie won the primary. Trump lost Wisconsin statewide, but he beat Cruz in Marinette. The 8th congressional district, which includes Marinette, had already flipped red when Reid Ribble defeated Democratic incumbent Steve Kagan in 2010. "Unemployment is rising in parts of the country," The Post duo continued, "particularly in a few states that are likely to be critical to the 2020 presidential election. Of the 10 closest states in the last election, four--Wisconsin, Michigan, Minnesota and North Carolina-- have seen substantial rises in unemployment over the past year, according to the latest Labor Department data. Others have seen smaller rises, but it’s too early to read much into the often-revised numbers. Economists say it’s telling that many of the places experiencing rising joblessness are in areas that still depend on manufacturing and agriculture. Those industries have been hit hard by President Trump’s trade war with China.

The global economic slowdown and dramatic shifts in retail are also playing a role in some job losses. Beleaguered retailers fear that the tariffs Trump wants to put in place at the end of the year would raise prices on popular items like laptops and phones, driving away still more customers.

Models forecasting the 2020 presidential election often incorporate unemployment. But it’s not the rate itself that matters, many economists say. It’s how it changes.

“Unemployment can be low, but if it’s rising, that will hurt the incumbent,” said Mark Zandi, chief economist of Moody’s Analytics. Moody’s has several models that it uses to predict the 2020 election outcome. “When unemployment is rising, people sense the implications of that: fewer jobs, smaller pay increases, no bonuses and maybe some layoffs. It’s palpable. People feel things are changing, and it makes them nervous.”

Zandi’s models currently predict an easy Trump victory in 2020, but if the stock market declines significantly or unemployment rises back above 4 percent, that could change the result.

“The key swing states are the ones that feel the most fragile right now. A lot of that is due to the trade war,” Zandi said. “If anything moves against Trump, especially rising unemployment or higher Democratic turnout, it’s going to be a lot closer.”

Michigan and Wisconsin are among the five most manufacturing-reliant states in the country, separate Labor Department data shows. Manufacturing, especially of durable consumer goods such as automobiles or recliners, is particularly sensitive to foreign trade-- and to recessions.

“There’s a real disconnect between the manufacturing economy and the rest of the economy right now, and our Michigan economy is more manufacturing-heavy than the nation as a whole,” said Gabriel Ehrlich, associate director of the Research Seminar in Quantitative Economics at the University of Michigan.

In a 2017 analysis, Georgetown University economists modeled how swing-state county unemployment impacted the presidential vote, and found what Georgetown’s Dennis Quinn said in an email was “a significant penalty from rising unemployment, especially in swing states like Wisconsin.”

Why Wisconsin? As Quinn and his collaborators wrote in the journal International Organization, “exposure to trade is strongly associated with presidential voting.” The strongest effects, they find, are concentrated in places with the most low-skill manufacturing jobs and in swing states.

“It’s fair to assume that Mr. Trump’s prospects in Wisconsin, a state with a high manufacturing base with significant concentrations of low-skilled workers, are dimmed by this news,” Quinn said.

There is heavy debate about how much influence the economy is going to have on the 2020 election outcome or whether the election will become a referendum on Trump’s leadership style. Even on the economy, views have become more partisan over time, suggesting some might not shift their vote despite what’s happening in their region.

“I don’t think they will blame Trump for it. They are more likely to keep lashing out at immigrants and others," said John C. Austin, director of the Michigan Economic Center.

Many places where unemployment is above the national level have struggled for years.

“There is a bifurcated economy here in the Midwest, especially in Michigan,” Austin said. “There are knowledge and talent hubs in many metro areas that are growing. Whereas, small and mid-sized manufacturing places just haven’t found their new way yet.”

Unemployment is rising across the region, but in some places it may be a good sign. Unemployment typically rises for one of two reasons: Either more people are losing jobs or more people have been inspired (or compelled) to come off the sidelines and look for work.

But hiring appears to be cooling in some states, especially Wisconsin and Minnesota. Companies typically pull back on hiring before they turn to layoffs. The average rate of layoffs and firings has risen more rapidly in North Carolina than in any other state over the past two years, according to Labor Department data. In the other states, data through June did not yet show a sharp rise in layoffs.

For now, Michigan’s economy has slowed and the labor market has stalled out, but this turn is just starting to take place. It can often take a while before people’s perceptions change, and there is hope that conditions could improve, especially if Trump de-escalates trade tensions with China.

“I don’t think we’re in a psychological crisis zone in Michigan," Ehrlich said, "but I think the key is to avoid letting it get much worse.”

Lauren Ashcraft is a candidate for Congress, not in the Midwest by in NYC. A former analyst for JP Morgan, she told us she's "been called by concerned members of my district whose businesses are being hit hard by Trump's arbitrary tariff wars. One particular person has had to lay off multiple employees in his small family-owned business because the supplies he has to import have skyrocketed in price. As mentioned in my previous guest blog post, the tax cuts Trump handed out to corporations ended up becoming bonuses and pay raises for senior executives while layoffs for average employees have resumed. It is clear that he is handing out gifts to his friends and donors with no regard to the future well-being of this country. We measure success of presidents in the wrong way. We can look at unemployment rates and the volatile stock market's temporary ups as a win for Trump, or we can see everything for what it is. Low unemployment does not measure how many people are stuck in jobs they disagree with because they are afraid to lose their health insurance. Stock market performance does not measure how parts of NY-12 are under water because of rising sea levels. Tariffs do not prevent the criminalization of black and brown bodies in our society. If we measure the actual well-being of the people, it will be terribly evident how urgently we need true representation and leadership who prioritizes people over profit."

The Siena poll is pretty useless outside of New York state elections, but the NY Times foolishly insists on using it; I never understood why, since it never gets anything right and is always several degrees to the right. Yesterday, Nate Cohn used it to show that Trump is still competitive in states that no other-- more reliable-- polls show him competitive in. Siena shows that Trump would beat Elizabeth Warren badly and tie Biden in Michigan and that only Bernie would beat him there. The same poll shows Biden and Bernie beating Trump in Pennsylvania and Wisconsin, but Trump tying Elizabeth in both those states.

Historically, Emerson is far more accurate than Siena and they were in the field in Michigan at the same time Siena was-- and came out with very different findings.

One more poll to wrap this up, this one from the Financial Times and the conservative Pete Peterson Foundation. Lauren Fedor writes that "Nearly two-thirds of Americans say they are not better off financially than they were when Donald Trump was elected, casting doubt on whether economic expansion and a record bull market will boost the president's re-election campaign in 2020... 31 per cent of Americans say they are now worse off financially than they were at the start of Mr Trump's presidency. Another 33 per cent say there has been no change in their financial position since Mr Trump's inauguration in January 2017, while 35 per cent say they are better off. Persistently slow wage growth appeared to be a main driver of discontent, with 36 per cent of those who said they were worse off blaming their income levels. On Friday, the US labour department said average hourly income had risen 3 per cent in October, growth that was near highs for the past decade but lower than before the financial crisis. Another 19 per cent pointed to personal or family debts as the reason they felt worse off."

And of course... the wealthiest Americans are the ones reporting that they're better off since Trump took office. Working families are the ones who have done worse economically or just stagnated. I hope you realize by now that that's entirely by design and certainly not a coincidence.