Recession Fears Could Swamp Trump Even Before a Recession

The Trump administration is pinning its hopes for reelection on voters’ perceptions of the economy

A trader wipes his eyes as he watches stock prices at the New York Stock Exchange August 23, 2019 in New York. Photo: Don Emmert/Getty Images

Fears about a recession can become a self-fulfilling prophecy — in consumer behavior, and in their voting habits.

The Labor Department had some disappointing news last week, announcing that the U.S. economy added just 130,000 jobs in August, falling short of economists’ expectations. The announcement came on the heels of a monthly update to the University of Michigan’s consumer confidence index, which fell to 89.8 in August, a nearly 10 point drop from the prior month and the largest monthly decline on record since 2012.

In some ways, the decline is not particularly surprising — recession fears have spiked dramatically in recent weeks due to a global economic slowdown and the president’s escalating trade war with China. But falling consumer confidence can have a meaningful effect on the health of an economy, all on its own.

This is a big problem for the Trump administration, which is pinning its hopes for reelection not just on a strong economy, but also on voters’ perception of the economy. In part, that’s because voters need to believe the economy is strong if they’re going to reward the president for a strong economy.

Here’s how it works: Consumers faced with countless stories about an imminent recession, a tanking stock market, contraction in the manufacturing sector, and an erratic president will start to worry that their own jobs and income may be at risk. In response, they’re likely to buy less stuff, even if they themselves haven’t yet lost their job or received a pay cut.

Falling consumer confidence can have a meaningful effect on the health of an economy, all on its own.

But it’s not just negative news that drives consumers’ behaviors. Consumers also respond to economic uncertainty — such as the type elicited by the administration’s veering approach to negotiations with China in recent weeks — with more caution as well. In a working paper from the National Bureau of Economic Research, a group of economists demonstrated that households…