The economy and the presidential vote: What leading indicators reveal well in advance

Everybody knows that “the economy” matters in presidential elections, but how can one incorporate economic information in an early forecasting equation? Our economic forecasting tool is the cumulative growth of leading indicators during a presidential term—weighting recent growth most heavily—which provides an early warning, as early as quarter 1 of the election year, about the Election Day economy. To control for other, non-economic factors, our model also includes presidential approval or trial-heat polls. In this paper we show how cumulative leading indicators measured early in the election year actually reveal as much about the final vote as cumulative income growth observed on the eve of the election. That is, voters respond at least as much to economic change that is predicted well in advance of elections as to economic surprises that are felt during the course of the campaign. Approval judgments incorporate these effects over the course of the election year. Very late economic shocks matter, to be sure, but they are not known until well after the campaign. The findings are informative about how the economy matters on Election Day, and have implications for our ability to forecast the outcome well in advance.