With just under 10 days left until the election, Vice President Kamala Harris is seeing favorable economic conditions.

Gas prices and mortgage rates have decreased, inflation-adjusted earnings are rising, and consumer confidence is low but remains above the level typically associated with a recession.

Historically, these economic indicators have been reliable predictors of success for the party currently in power during presidential elections. According to Moody’s Analytics’ latest election model, there’s a 55.5% chance that Harris will narrowly win, largely due to these encouraging signs.

However, this election is anything but typical.

Typically, public sentiment regarding the economy aligns with economic indicators. Yet, many voters still believe former President Donald Trump would manage the economy better than Harris. Analysts attribute this perspective to the inflation surge caused by the pandemic from 2021 to 2023.

Is inflation truly on the decline?

Indeed, annual inflation has decreased from a peak of 9.1% in mid-2022 to 2.4% in September, which is just slightly above the Federal Reserve’s target of 2%, based on the consumer price index. Nevertheless, prices have risen approximately 20% since President Joe Biden took office in January 2021, leading many voters to favor Trump.

Moody’s economist Justin Begley suggests that the firm’s election model predicts that Americans’ recent experiences with inflation, job availability, and economic activity will enable Harris to secure just enough votes in critical swing states to achieve an Electoral College win.

“The resilient economy serves as a boost for Harris,” Begley remarked. “Perceptions of the economy don’t outweigh the tangible data in our model.”

Here’s a summary of key points:

Gas prices

The national average for regular unleaded gas is $3.15 per gallon, down from $3.54 last year and from $5 during the summer of 2022, according to AAA. For Trump to strengthen his chances, prices would have needed to rise to $3.77 per gallon or more during the July-September quarter, according to Moody’s model. However, a sudden increase right before the election could also affect voter opinions.

Gas prices, which consumers encounter regularly, are viewed as one of the most direct reflections of inflation, as noted by Begley.

Mortgage rates

Currently, thirty-year fixed mortgage rates average 6.44%, which is an increase from about 3.7% before the pandemic but a reduction from nearly 8% last year. Moody’s indicates that rates would have needed to rise to 7.45% to impact the election’s outcome significantly.

According to Begley, many Americans consider their mortgage payments to be the primary cost of borrowing.

Income growth adjusted for inflation

Average incomes, adjusted for inflation, have risen by 1.8% compared to a year ago. For this to influence the election, incomes would need to drop by 8.1% annually, as per Moody’s analysis.

This figure is important as it reflects inflation, job market health, and Americans’ purchasing capacity, according to Begley.

Consumer confidence

Consumer confidence declined in September, experiencing its largest drop in three years due to worries about job market conditions and business outlook, according to the Conference Board. Nevertheless, job growth is still strong. The consumer confidence index is currently at 98.7, down from the post-pandemic average and significantly below its pre-crisis average, yet it remains above the 80-point mark that usually indicates a recession.

Despite notable economic and job gains, inflation has dampened consumer sentiment over the last three years. Consumer confidence is seen as a predictor of spending habits, which constitutes 70% of the economy.

Ultimately, predicting the outcome of the presidential election using these economic indicators is not an exact science, according to Begley, and the significance of these indicators varies each election year. Significant changes, even if they don’t meet certain benchmarks, might still influence the election, especially when combined with other factors, such as rising tensions in the Middle East.

Moreover, the Moody’s model includes additional factors like voter turnout for the non-incumbent party, approval ratings for the incumbent party candidate, and support for third-party candidates.

How does the economic situation affect voter choices?

Since 1980, every presidential candidate from the incumbent party whose economy maintained a positive performance across key metrics has won, while those who fell short have lost, Begley noted.

In 1980, high gas prices and mortgage rates, combined with the Iran-Iraq War and rising inflation, led to the defeat of Democratic President Jimmy Carter.

In 1992, Republican George H.W. Bush faced defeat as consumer confidence fell sharply following the 1990-91 recession. Similarly, Donald Trump lost in 2020 when economic confidence dropped during the early phase of the pandemic.

Both Bush and Trump encountered challenges from recessions occurring before or during their election years. These economic downturns tend to shift voter support toward rival candidates, according to Begley.

Even though Harris currently shows an advantage in the Moody’s model, Begley describes the race as “a toss-up” and noted that it wouldn’t require much for the model to indicate a win for Trump. He mentioned that if Trump manages to achieve even a 1.5% increase in Republican turnout compared to 2020, and/or performs better among independent voters, he stands a good chance of winning, among other potential scenarios.

Other analysts give Trump a clear advantage regarding economic issues, suggesting that voters’ perceptions might outweigh positive economic indicators at the polls.

David Self, the chief economist for Nomura’s developed markets, pointed out that the ongoing experience of high inflation significantly influences voters’ views of the economy. Therefore, while many forecasters see the economy as performing well, Self argues that “it’s more of a liability for Harris than a strength.”

Which candidates are leading in the presidential polls?

This week, the latest Reuters/Ipsos poll shows Harris holding a slight lead over Trump at 46%-43%. However, 70% of registered voters believe the cost of living is increasing negatively, and 60% feel the economy is moving in the wrong direction. Additionally, 46% of respondents think Trump has a better economic strategy compared to 38% for Harris, although Harris has been closing the gap on this issue in recent polls.

A poll from the Wall Street Journal indicates Trump leading with a wider margin, 47%-45%.

Oxford Economics presents two conflicting election models that hinge on swing voters’ perspectives on inflation. If swing voters concentrate on the change in consumer prices rather than their levels, they may lean towards supporting the vice president due to the notable decrease in inflation since mid-2022. Oxford economist Bernard Yaros mentioned that this model incorporates a “misery index” combining inflation and unemployment rates.

In this scenario, Harris is predicted to secure the electoral vote with a score of 281-257.

Conversely, if enough independent voters in key battleground states continue to feel the pinch from the high inflation experienced in 2021 and 2022, Yaros projects that Trump could win the Electoral College with a tally of 297-241.

“It’s challenging, if not impossible, to determine which model will effectively reflect the level of voter dissatisfaction stemming from the inflation shock of the past four years.”