Trump could suffer ‘historic defeat’ in November: Oxford Economics

Yahoo Finance’s Alexis Christoforous and Brian Sozzi speak with Oxford Economics Chief U.S. Economist Greg Daco about President Trump’s reelection prospects.

Video Transcript

BRIAN SOZZI: The presidential election is still more than five months away, but a new forecast finds President Trump could be in for a beating at the polls this fall. Oxford Economics ran the numbers, and says high unemployment and a deep recession mean President Trump could deliver the worst performance by an incumbent in a century. Wow. Let's talk about it with Oxford's Chief US Economist and friend of the show, Greg Daco, and Yahoo Finance senior columnist Rick Newman is here as well to chime in.

Greg, I suspect your Twitter feed will be going around the clock off of this research. What did you find? I was reading this, and the takeaway is that President Trump could lose not by a little, but by a landslide come November.

GREG DACO: Yeah, I mean, if we look at today's economic environment with the hit of the global coronavirus recession, we're looking at unprecedented numbers when it comes to income growth, when it comes to the unemployment rate, when it comes to even inflation by the end of the year. So if we look at how people vote with their pocketbooks, this point to a historical defeat for President Trump. We have two models that we run side by side based on economic data.

The first one is national, looking at the popular vote, and that would put Trump's popular vote around 35%, which would be a historic loss, the largest loss in over a century. The electoral college-based state-based model is actually pointing to around 328 electoral college votes for the Democratic nominee, which is presumptively Joe Biden. That would also be the largest, essentially, win by a Democrat since Lyndon Johnson. So we're really looking at a very difficult uphill battle when it comes to the economy for Trump's re-election chances.

ALEXIS CHRISTOFOROUS: Greg, I'm wondering, though, how that might change on a dime when it comes to how the election takes place in November and how that's going to affect how many people come out and vote. Because if you don't get strong voter turnout, could this actually keep things status quo in the White House?

GREG DACO: Absolutely. I mean, the election models that we have are largely based on the state of the economy, but also have a voter turnout component. And what we figured out is that over the past three cycles, essentially, the voter turnout component has become the essential part of the vote. Now, that's intrinsically linked to the state of the economy.

So in states where we're seeing a poor economy, we might actually even see a stronger turnout for Democrats. And we're looking at states like Iowa, Wisconsin, Ohio, Michigan, Pennsylvania all flipping in our baseline forecast. But even states like Florida, and Texas, and Arizona could also flip in a scenario where you have a higher turnout for the Democrats and a relatively weak economy.

The key component that the models do not capture is how the virus will fare over the coming months. We could be in a situation by this fall where we either have a second wave or where the virus is behind us, and the administration makes the most of it, saying it has combated the worst of evils of all time. So that is a component that the models do not capture well.

RICK NEWMAN: Hey, Greg. Rick here. Every time I write about the possibility that Trump might lose, I hear from Trump supporters out there who say polls are wrong. Models are wrong. Look at 2016. So why don't you explain the track record for this model, and tell us what your confidence level is in its predictive power at this point.

GREG DACO: Well, I think, in general, the model has been quite accurate. We've seen two misses in '68 and '76. The popular vote was actually correct, which is what our models do. The popular vote for 2016 was correct with Clinton winning the popular vote. Unfortunately, as we know, the turnout was different from our model results in that the electoral college vote swung in favor of President Trump.

So in today's environment, when we look at these model results, we have to keep in mind that yes, the economy is going to be a nearly insurmountable obstacle for Trump's re-election chances. But we have to look at other factors that you've pointed out, and others have pointed out, in the sense that there is a populist undercurrent that has dominated the airways over the past three or four years.

And we also know that there is tremendous uncertainty around the fallout from the COVID-19 recession. And different types of developments could really swing the turnout either way. We have built a scenario whereby Trump does manage to win re-election. That would feature an economy that rebounds a little bit faster than our baseline, but also, and very importantly, a stronger turnout by Republican voters.

RICK NEWMAN: Greg, one of the big questions if Biden were to win is what would happen to the Senate. Do you-- which would-- could go Democratic. So if there's a Biden landslide victory, more likely the Senate would go Democratic, and that obviously has important policy implications. Do you make any projections about Congress?

GREG DACO: We don't make outright projections using these models for-- for Congress. But we do note that in a scenario in which the Trump administration would lose its re-election bid and in our baseline scenario, the win in terms of electoral college votes would be significant enough to tilt the Senate towards the Democrats. I think a key guide as to how the Senate and House elections are going to fare is what we saw in the primaries. And interestingly, in some of the traditionally red states, we saw some blue governors or elected officials that were doing relatively well. And that's why, in our model, we're not excessively surprised by states like Florida and Texas being on the verge of potentially flipping to Democrats in a presidential election.

BRIAN SOZZI: Greg, very important here, what did you see-- how did you-- how did you see the president faring in his re-election bid pre-COVID-19?

GREG DACO: That's a very good question, because our outlook has dramatically changed since the COVID-19 recession. Before the coronavirus recession, we were anticipating that President Trump would wrin-- win his re-election bid with about 55% of the popular vote. Now, looking at the different states, there were still some states that were expected to flip, including Ohio, Iowa, Wisconsin, but not enough to tilt the balance in favor of the Democratic nominee.

Now, with the economy playing an even greater role and with a lot of income being lost, and the unemployment rate soaring, and massive job losses across the country, the economy has become a very significant negative obstacle in terms of Trump's re-election chances. But yes, that has shifted quite dramatically since our latest iteration pre-COVID-19.

ALEXIS CHRISTOFOROUS: And Greg, I think what your models are pointing to is that if we have this quick V-shaped snap back in the economy, that's probably the best chance Trump has at re-election. You're an economist. You're a friend of the show. What's your take on a V-shaped recovery? Because the more and more folks we talk to say that is less and less likely.

GREG DACO: I'm not a big believer in a V-shaped recovery. Our outlook is more of a U-shaped recovery, where we do start to see some rebounds in activity over the coming months, which artificially give this impression of a V-shaped recovery because the growth numbers are going to be very strong. But we have to keep in mind that we've lost a tremendous amount of output.

Our estimate for the peak-to-trough decline in economic output over the first half of the year is 12%. That would be the third worst contraction in economic activity since the Great Depression. And that would be essentially three times worse than what we saw during the financial crisis.

So we have to keep in mind that even though the third quarter may show some strong momentum, we're going to see that fairly slow rebound there after. And in that environment, the economy would still be much worse and people's incomes would be much worse than they were at the start of the year, so therefore, favoring the opposing party in the re-election bid.

RICK NEWMAN: Greg, what's your best guess about how voters and consumers are going to be feeling in late October as they're preparing to vote? Will we-- do you think we'll be seeing an upswing in confidence because at least people will have a sense that things are getting better? Or do you feel this is going to be more like a quagmire, will people just, you know, feel more and more [INAUDIBLE]?

GREG DACO: I think it would largely vary across the country and across various income strata. If you look at how this virus has affected different people, different sectors of the economy, you see that some sectors are witnessing massive losses, massive job losses, and some families, some households are seeing significant hit to their wallets. Those families most affected by the coronavirus recession are unlikely to see a rapid rebound in the third quarter.

I think one of the myths out there is that we're going to see just a number of temporary layoffs and that companies are going to rehire a lot of workers in the coming months. I think a lot of these temporary job losses will become permanent, and that will, unfortunately, affect incomes of many families across the country and lead us to an environment whereby even though the economy overall may be improving, you're going to see that stretch of inequality continuing to rise.

And then the question is, how does that influence voter turnout? And how does it influence the vote? Is it perceived as a positive momentum that drives the voter turnout for the Republican Party? Or is it seen as a catastrophe in the handling of the crisis, which would lead to a higher turnout for Democrats?

BRIAN SOZZI: All right, let's leave it there. Greg Daco, Chief US economist at Oxford Economics, and Yahoo Finance senior columnist Rick Newman. Good chat, guys. Have a good day.

GREG DACO: Thank you.