As midterm elections near, the ever-changing outlook on the U.S. economy remains at the forefront of voters’ minds. Cutting through the clutter of competing political punditry to uncover an evidence-based understanding of the country’s current economic state remains a challenge.
To that end, the Vanderbilt Project on Unity & American Democracy recently hosted Mark Zandi, chief economist at Moody’s Analytics, for a virtual Q&A, Ask an Economist, to provide an expert view on major economic factors at play this election season.
Zandi laid out the drivers of today’s inflation, including factors such as global supply chain disruption sparked by the COVID-19 pandemic, the spike in energy and agricultural prices triggered by Russia’s invasion of Ukraine, and a domestic labor shortage caused, in part, by falling immigration. He provided an overview of recent Consumer Price Index growth, which is currently 8.3 percent, 6 points above the average 2% rate seen most years. That 6-point difference is broken down in the following areas:
- 2%: High Energy Costs (including oil)
- 1%: Food (which ties back into energy)
- 1%: Supply Chain
- 1%: Rent Growth
- 1%: Services and Labor (notably, health care services)
He also addressed the likelihood of a recession and what circumstances could lead to one.
“We are not [currently] in a recession,” Zandi stated, pointing out the “booming” job market and noting that recent drops in GDP are in line with normal trends year over year. He estimated a low risk of a recession in the next three to four months, although he conceded that the risk will increase in the next 12–18 months as inflation and interest rates continue to rise.
The sharp decrease in the number of immigrants America has accepted as lawful permanent residents in recent years (with 2020 being the lowest since 2003) also serves as a material drag on the U.S. economy, according to Zandi.
“Both skilled and unskilled, we need more immigrants to help power the economy because of the aging of our population and the boomers leaving the workforce,” he said, stressing the importance of developing a rational immigration policy to the country’s long-term economic success.
Zandi noted that the “unknown unknowns,” that is, unanticipated events or disasters, make it difficult to predict with full accuracy the economic state on election day.
Wrapping up, Zandi observed that the most salient number for most Americans is the price of a gallon of gasoline, which may be the most important economic indicator for most Americans as they start to head to the polls.
The Vanderbilt Project on Unity & American Democracy regularly hosts events such as this one in an effort to center facts and evidence in political discourse. The Unity Project’s next event will be “The News Media’s Role on Election Night,” on Wednesday, Oct. 19, aimed at explaining the mechanics and nuance of network election calls. This event will take place in person and virtually. Register here.