Vice President Kamala Harris could find support for her broader economic agenda as she heads into this week's Democratic National Convention and onto the road this fall for the final months of her nascent presidential campaign, as stock markets test recent record highs and Wall Street rethinks its recent recession forecasts.
Harris, who will accept her party's nomination for president later this week in Chicago, has faced criticism from some analysts, as well as a series of direct (and often personal) attacks from her Republican rival, former President Donald Trump, regarding the perceived lack of detail in her economic agenda.
The vice president sought to counter those criticisms last week during a speech in North Carolina, where she laid out plans to eliminate grocery price gouging in order to bring down inflation, build millions of new homes while offering first-time buyer's financial support, and expand child tax credits.
"I think that if you want to know who someone cares about, look at who they fight for," Harris said Friday. "Donald Trump fights for billionaires and large corporations. I will fight to give money back to working- and middle-class Americans."
Mark Malek, chief investment officer at Siebert, says many of Harris's plans have the potential to stoke inflation, while upsetting some of the supply/demand dynamics in key markets, But he adds that "most... would be stimulative to economic growth."
'More money means more consumption'
"More money in the pockets of consumers ultimately means more consumption," Malek said. "All in all, Vice President Harris’s proposals appear more center-Democrat-focused than would be expected, (but) someone needs to remind her and her opponent to be more mindful of the economy."
Beyond the cut-and-thrust of her attacks on Trump, or his focus on her role in what he calls the Biden administration's failure to tackle inflation, Harris could find that a host of economic indicators, as well as the stock market itself, could align to provide support for her ambitions heading into the thick of the autumn campaign.
Related: Recession forecasts crushed as economy defies doomsayers
Markets fully expect the Federal Reserve to begin lowering interest rates in September, having held them steady at a two-decade high for more than a year, as data show inflation continued to slow over the summer months.
That's likely to boost the broader stock market, which last week shook off a bizarre August slump with its best five-day rally of the year, which lifted the S&P 500 to within just 2% of the all-time peak it reached in July.
The S&P 500, the broadest measure of U.S. blue-chip shares, has gained more than 16.5% so far this year and is up nearly 50% since President Joe Biden won the election in November 2020.
Recession risks are fading
Perhaps more important, the broader economy is almost certain to avoid recession heading into the November election. It expanded at a 2.8% clip over the three months ended in June and is growing now at an estimated pace of 2%, according to the Atlanta Fed's GDPNow tracking tool.
Goldman Sachs, in fact, trimmed its own recession forecast to around 20% (from 25%) over the next 12 months, citing positive data on consumer spending, weekly jobless claims, small-business optimism and corporate activity in the services sector.
"Our view is that the economy is slowing but not fast enough to enter recession territory," said Greg Marcus, managing director for UBS Private Wealth Management in Washington.
Related: CPI inflation report upsets betting on big Federal Reserve rate cut
"As the Fed starts to cut interest rates, that will take time to work its way into the economy, but should help to lessen some of the stress that this elevated interest rate environment may have caused," he added.
At the same time, inflation pressures are likely to ease even further into the autumn, following the first dip below 3% for headline inflation in more than three years last month.
That will be welcome news for the Harris campaign, given that polls have consistently shown that voters who see the economy as the most important election issue continue to favor former President Trump.
Slowing inflation lift chance of Fed rate cuts
"Continued softening inflation is rolling out the red carpet for a Fed rate cut campaign to begin in September," said Jason Pride and Michael Reynolds, respectively chief of investment strategy and research and vice president of investment strategy at Glenmede.
"The last three months of services less rent of shelter inflation have looked like the box score for a pitcher throwing a perfect game: three months of zero month-over-month gains, precisely the outcome they’ve been seeking after a long stretch of sticky services inflation," the pair added.
The job market will also play a key role in establishing the Democrats' case for economic stewardship, just as it will define the attack lines from Republican challengers, particularly after July data showed the headline unemployment rate hit a three-year high of 4.3% and sparked a round of recession concerns on Wall Street.
Related: Main Street businesses push back on Wall Street's recession gloom
Hurricane Beryl, which hit the Texas coast in early July and knocked out power for nearly 3 million residents in the Lone Star State, was likely responsible for the weaker-than-expected jobs data, which are likely to rebound in August and possibly into September as well.
"On the whole, the economy is in pretty good shape at the start of the third quarter," said Bill Adams, chief economist for Comerica Bank in Dallas.
"The decent growth of activity indicators in July suggests that the month’s increase in unemployment was not due to a slowing economy," he said.
"More likely, it reflects the impact of Hurricane Beryl in [the] Texas job market, and perhaps an increase in labor-force entrants due to immigration and college graduates hitting the job market."
All factors accounted for: No guarantees for November vote
Collectively, an improving stock market, a resilient economy, trend-line job creation and slowing inflation will provide some cover for Harris's platform, but not enough to ensure a November victory.
The housing market remains stuck in the mud, paralyzed by record high prices, elevated mortgage rates and the ongoing slowing in new-home construction.
Inflation, while slowing, has nonetheless left Americans paying significantly more for food, shelter and transportation than they did prior to the pandemic. And while wage gains have recently outpaced price increases, the hit to household budgets under the Biden administration has been profound.
More Economic Analysis:
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“I gave Harris and Biden an economic miracle, and they quickly turned it into an economic nightmare,” Trump told an audience in Ashville last week.
The former president has consistently exaggerated his administration's economic record, but his broader message on inflation and wealth creation has struck a chord with a notable plurality of American voters.
Harris will need to challenge this message with her own economic vision and must provide more details when she speaks to the party faithful later this week in Chicago.
However, at the very least, she'll be able to articulate this message to voters against an economic backdrop that is far more favorable then most would have imagined just a few months ago.
Related: Veteran fund manager sees world of pain coming for stocks
