Republican Nominee Faces Steep Uphill Battle
Our forecast implies that the economy will be a substantial drag on the eventual Republican nominee. We now view a recession starting in the first half of 2008, perhaps already underway, as the most likely outcome—likely pulling 2008 growth down to just a 0.8% rate. Though we see core inflation starting to slow soon, some of the increases in crude oil prices have not yet fed into consumer prices. This process should keep headline inflation elevated through the first half of the year; our 2008 headline CPI forecast is 3.3%.
Plugging these forecasts into our baseline vote share model predicts that the Republican nominee will get less than 45% of the popular vote. This substantial tilt away from the incumbent party is robust across a variety of specifications, ranging between 41.8% and 46.4%. The models that look back two years on inflation imply a lower vote share—since 2007 headline inflation was also elevated—while models that look at deviations from trend GDP growth imply a slightly higher vote share.
Consensus economic views are more optimistic, but still imply that the Republican nominee has an uphill battle ahead.