May 31, 2024

Thought of the Week:

Are you like my wife? Do you fast-forward through TV commercials, previous week show recaps, and program intros? Me? I kind of like show intros—Cheers, The Sopranos, Game of Thrones. What’s not to like? And the truth is, I often need the previous week’s recap to remind me of what happened and to set the stage for the upcoming episode. Although first airings of Super Bowl ads are arguably as important as the game itself, too often, today’s TV commercials get short-shrift due to streaming services, premium channels, and the ability to fast-forward through DVR’d programs. That’s too bad. With fast-forwarding, would   taglines such as: “Where’s the Beef” [Wendy’s]; “He likes it. Hey, Mikey!” [Life Cereal]; or “Hey kid, catch,” [Mean Joe Greene for Coke] reach iconic status. Or would the jingles for Oscar Meyer, Alka Seltzer, and Kit Kat become earworms? If fast-forward had been available, would political ads have shaped the battles for Congress and the White House the way they did—Ronald Reagan’s, “It’s Morning in America;” President Bush’s Willie Horton advertisement targeting Michael Dukakis on crime; the Swift Boat ads against Sen. Kerry; and Hillary Clinton’s “Its 3:00am” that questioned then Sen. Obama’s readiness for office? Who knows what impact this year’s ads will have. Regardless, the National Journal reports that for vulnerable members and challengers in swing states, campaign ads are providing a roadmap for how a candidate intends to keep or gain a seat. An ad from a PAC aligned with Senate Majority Leader Schumer (D-NY) for Sen. Brown (D-OH) highlights Brown’s legislation on the border that was signed by then-President Trump. Rep. Slotkin (D-MI) released an ad highlighting her military background and bipartisan work with former Presidents George W. Bush and Barack Obama. In his first ad, Sen. Tester (D-MT), the most vulnerable incumbent on the map, focused on his connections to the community and state. One thing all the candidates have in common in their ads is their lack of connection to President Biden. It’s no surprise that Tester and Brown want to distance themselves from an unpopular president—they are in for the fight of their political lives this cycle, running in states that Trump carried twice. And Rep. Slotkin is running to replace retiring Sen. Stabenow (D-MI) in a seat where turnout for the presidential candidate is likely to determine the fate of the race. However, what is most notable is the direct callout to bipartisan work with leaders of the other team. While Tester used a similar tactic in 2018 when he took out a full-page ad in 14 newspapers across Montana to thank Trump and tout his connections to the then-president, former Maryland Gov. Hogan (R) is using the same across the aisle tactic in an attempt to outrun his party’s presidential nominee in a state that Biden won by more than 30 points. In his latest ad, Hogan features past praise for him by prominent Democrats, including Gov. Moore (D), Biden, and his opponent, Prince George’s County Executive Alsobrooks (D). While disconnecting themselves from their respective national parties is going to be a difficult task for the candidates, it is a trend that seems to be emerging—instead of shunning national politics and candidates, they are embracing their opponents and counting on their bipartisan chops to get them across the finish line. Still, bipartisanship isn’t the message in every race. Rep. Boebert (R-CO) went on the air with two ads ahead of her primary to replace former Rep. Buck (R-CO). Spot one is an ad featuring a high school student who says she’s voting for Boebert in her first election because “she’s fighting to save women’s sports.” In a second spot Rep. Boebert goes direct to camera to address her plan to fix the immigration issue.

Thought Leadership from our Consultants, Think Tanks, and Trade Associations

Bloomberg Government Says the Trump-Biden Rematch Will Be Decided by a New Cast of Voters. While the 2024 presidential election will be the first rematch in decades, the U.S. electorate that will vote in November has changed more since 2020 than in recent cycles for 41 states, including all seven considered battlegrounds. States cumulatively welcomed more than 31 million eligible voters since Americans last voted for president, counting people who moved from a different state, turned 18, or became naturalized citizens. Although less-populous states tended to see relatively more churn, the numbers are still significant for the Rust Belt battlegrounds of Michigan, Pennsylvania, and Wisconsin, which were among the least-changed nationwide. At least 10% of the voting-age population has switched out in the three states since President Biden and former president Trump last faced off, representing an estimated 2.4 million new voters. And when compared to the 2020 margin of victory, the number of new voters in the mix could be enough to change the balance in an election likely to be decided by razor-thin margins in just a handful of states. Although any number of factors could alter the outcome this year—voter  unhappiness over inflation, abortion and immigration; third-party candidates; and a shift in turnout—one largely overlooked factor is the changing makeup of the electorate, with some states swapping out as much as 15% of their voting-age population and replacing them with new eligible voters.

 Conference Board Sees U.S. Economic Growth Cooling, Recession Unlikely. The U.S. economy started 2024 on a softer note than anticipated as elevated inflation and interest rates weighed on growth. While a recession is not forecast for 2024, expect consumer spending growth to cool further and for overall GDP growth to slow to under 1% over the Q2 to Q3 period. Thereafter, inflation should gradually normalize to the Fed’s 2% target in 2025 as quarterly annualized GDP growth rises toward its potential of near 2%. Interest rates should fall starting in late 2024 but may stabilize at levels exceeding pre-pandemic averages. In terms of consumption consumer spending held up well in 2023 despite numerous headwinds. However, this trend has begun to wane. Real retails sales growth is in retreat and consumer confidence has fallen for several months. Gains in real disposable personal income growth are softening, pandemic savings have been exhausted, and household debt is increasing rapidly. Consumers are spending more of their incomes to service debt, and auto loan and credit card delinquencies are rising quickly. Therefore, overall consumer spending growth will continue to slow in Q2 and Q3 as households struggle to find a new equilibrium between income, debt, savings, and spending. While labor markets are anticipated to soften over this same period, do not expect them to deteriorate. Business investment growth slowed in Q1 as high interest rates weighed on financing activities. This trend should intensify over the course of this year as the Fed patiently awaits additional progress on inflation. Residential investment, a bright spot in the economy due to a housing supply and demand mismatch, has been performing better. However, as consumers grapple with their finances this trend is likely to slow until household balance sheets mend and interest rates fall.

 Conference Board Reports that U.S. Consumer Confidence Rose in May. Consumer confidence improved in May after three consecutive months of decline. Although consumers’ assessment of current business conditions was slightly less positive than last month, the strong labor market continued to bolster consumers’ overall assessment of the present situation. Views of current labor market conditions improved in May, as fewer respondents said jobs were “hard to get,” which outweighed a slight decline in the number who said jobs were “plentiful.” Looking ahead, fewer consumers expect deterioration in future business conditions, job availability, and income, resulting in an increase in the Expectations Index. Nonetheless, the overall confidence gauge remained within the relatively narrow range it has been hovering in for more than two years (see graph below).

“Inside Baseball”

While the 2017 Trump tax cuts slashed the corporate income tax rate, Punchbowl News reports that the discussion today around the Capitol about the corporate rate is highlighting a number of Republican fault lines in next year’s debate over the future of the tax code. Some want to look tough on big companies and keep everything on the table, while plenty of others view any increase to the corporate rate as a betrayal of the party’s economic ethos. If Donald Trump wins reelection, there is little doubt that GOP lawmakers will get in line behind any tax plans he proposes. A Republican sweep in November’s elections would likely be good news for companies on edge about keeping their rate as is. But if Democrats win/maintain control of a chamber of Congress or the White House, it is likely to be a bumpier ride that could test Republicans. Here’s why: (1) Democrats will put raising the corporate tax rate on the table; (2) Anxiety is rising over the national debt; and (3) Extending the 2017 tax cuts that expire at the end of next year would cost over $4 trillion, according to CBO estimates. All this could force Republicans to choose between a set of signature policies and top political issues. In the end it might mean deciding between priorities with a neater populist message that some in the party want to embrace, versus more traditional pro-business provisions.

 In Other Words

“The day Republicans vote to nuke the filibuster is the day I resign from the Senate. That is how strongly I feel about it…We gotta have the courage to stand against [this],” Senator Tillis (R-NC) vowing to preserve the filibuster, which some believe is at risk if Republicans achieve a unified government in November.

Did You Know

A political gender gap has opened across the U.S.’s youngest voters— aged 18 to 29—with young women significantly more Democratic than young men. National polls find that among 18 to 29-year-olds, President Biden’s lead with women is +33 points in contrast to young men where his lead is just six points. When compared to the same stage of the 2020 campaign, Biden’s lead among women was nearly identical (+35), but his lead with men was +26, representing a steep drop over the past four years.

 Graph of the Week

The House has kicked off work on fiscal 2025 government funding, already advancing two of the 12 appropriations bills—Legislative Branch and Military Construction-VA. While House Republicans have laid out an aggressive timeline to wrap up appropriations work by the August recess, the Senate has yet to announce its plans. House appropriators have also adopted their top-line spending levels for each of the appropriations bills (see chart). The allocations reflect a 1% boost to defense spending and a 6% cut to nondefense funds. Disagreements over those levels, policy riders, and the looming elections are sure to mean that a stopgap measure will be needed by Oct. 1 to prevent a government shutdown.

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