It's the Economy, Stupid.

The economy is sinking...and Trump’s to blame. Will Democrats seize the moment or let it slip through their fingers?

Mercury News

Democrats have been here before. Successfully branded as cultural extremists by Republicans, the party struggled to win Presidential elections from the late 1960s through the early 1990s. The moniker of ‘San Francisco Liberals’ was a political liability, and the very word ‘liberal’ was practically a death knell for politicians in the South, Midwest, Rust Belt…hell, virtually anywhere.

After a long, tortuous period of internecine warfare, the rise of the centrist Democratic Leadership Council (DLC) ultimately made economic issues central to the party’s fortunes.

The phrase "It's the economy, stupid" has become an enduring political axiom since James Carville coined it during Bill Clinton's successful 1992 presidential campaign. Thirty-three years later, this simple truth continues to shape American politics. And despite his electoral victory just months ago, President Donald Trump may soon find himself on the wrong side of economic reality.

To be sure, economic issues have become a weaker indicator of electoral outcomes than cultural issues in recent cycles. In fact, it’s fair to say that during the Trump era, economic concerns have taken a back seat to the culture wars dominating American politics. In the 2016, 2018, 2020, and 2022 elections, voters cited the economy as a top concern while ultimately voting in ways that suggested cultural issues were more dominant in their minds.

So, what gives? Does the economy determine political outcomes, or is that an outdated notion that should be disregarded like so many other data points we’ve recently tossed out?

Trump returned to the White House riding a wave of discontent over economic conditions, promising a return to prosperity through familiar policy prescriptions: tax cuts, deregulation, and protectionist trade measures. However, recent economic indicators suggest that Trump's second term may be defined by economic headwinds that no amount of political messaging can overcome.

The current economic landscape presents multiple challenges that the administration cannot easily dismiss. According to a March 11, 2025, Forbes analysis by economist Teresa Ghilarducci, five key warning signals indicate a looming recession that could derail Trump's economic agenda and political standing. These red flags aren’t just routine market fluctuations—they expose fundamental weaknesses in the economic foundation his administration inherited and exacerbated but now must address.

The Five Warning Signs

1. Declining Consumer Spending

As Ghilarducci notes, the first alarming indicator is the dramatic decline in consumer spending across major sectors. Retail sales have contracted for three consecutive months, with department stores reporting a 5.8% year-over-year decline. This pullback is particularly concerning because consumer spending accounts for approximately 70% of U.S. economic activity.

The administration's promises of renewed prosperity ring hollow when Americans are tightening their belts across income levels. This is eerily reminiscent of the economic slowdown heading into the 1992 election, where a weakening consumer purchasing trend signaled an impending recession. There are few things stronger than American’s desire to buy stuff, and when those numbers drop, watch out! Something’s happening, and you’re a politician with your name on the ballot, you best pay attention.

2. Housing Market Contraction

The second warning sign is a sharp decline in the housing market. New home construction has plummeted 12% since November while existing home sales have reached their lowest level since 2010. This slowdown ripples through multiple sectors, from construction employment to furniture sales to appliance manufacturing.

The ongoing affordability crisis, exacerbated by mortgage rates near 7%, has created both economic drag and political vulnerability for an administration that promised a housing market revival. I’ve talked about this ad nauseam, particularly as it relates to Latino male voters. One in five Latino men work in the residential construction space or a related industry. If Democrats want to win them back, messaging on this issue is the way to do it – if they care to.

3. Manufacturing Slowdown

Perhaps the most concerning red flag for the administration is the rapid deterioration in manufacturing activity. As Ghilarducci reports, "The ISM Manufacturing Index has remained in contractionary territory for nine consecutive months, its longest such streak since the 2008 financial crisis."

This decline directly impacts regions and demographics central to Trump's political coalition. Factory closures and layoffs could fracture his base, particularly in industrial swing states. The economic chaos Trump thrives on often harms industries that require long-term planning and stability – two things that have never been his strong suit.

4. Weakening Labor Market

The fourth warning signal is a weakening labor market. While headline unemployment remains relatively low, Ghilarducci highlights more nuanced indicators showing labor market deterioration: "Initial jobless claims have risen for six straight weeks, temporary hiring has declined by 8.2% year-over-year, and average weekly hours worked have decreased for four consecutive months." These early warning signals typically precede broader unemployment increases by several months, suggesting the labor market may deteriorate further as Trump's term progresses.

This could open the door for familiar political scapegoating. Traditionally, politicians facing labor market struggles turn to the old playbook - ‘blame immigrants for taking American jobs.’ But, here’s the contradiction: Trump simultaneously boasts about record deportations and a slowdown in illegal border crossings. He can’t have it both ways. Trump will, of course, try – arguing that there are too few and too many undocumented workers in the job market at the same time. If anyone can pull off that rhetorical gymnastics, it’s Trump.

5. Corporate Financial Stress

The final red flag is rising corporate financial stress. Corporate profit margins have shrunk for three straight quarters, while corporate bond defaults have reached their highest level since 2020.

This financial pressure forces companies to cut costs - through layoffs, reduced expansion, and limited wage growth—creating a negative feedback loop that further suppresses consumer demand and economic growth.

Why This Matters Politically

Trump’s political brand is inextricably linked to economic prosperity. Unlike politicians who emphasize social issues, foreign policy expertise, or other dimensions of leadership, Trump's primary claim to political legitimacy has always been his supposed business acumen. When the economy falters, so does his core political identity.

Historically, economic downturns have been reliable predictors of presidential approval ratings and midterm election outcomes - at least until Trump upended conventional wisdom. While he won't face voters directly for nearly four years, his party will confront midterms in 2026, where economic conditions may once again play a decisive role. A president presiding over economic contraction rarely sees his party gain ground in Congress.

What makes this moment uniquely perilous for Trump is that the traditional model of economic voting may understate the current risk. Conventional wisdom holds that voters respond mainly to short-term economic changes in the months preceding an election. However, the global economic transformation underway represents something more profound than typical business cycle fluctuations.

As Ghilarducci emphasizes in her analysis, "This economic weakness reflects structural challenges beyond typical cyclical patterns." She points to demographic shifts reducing workforce participation, global supply chain restructuring, and climate-related disruptions as forces creating persistent economic headwinds that no conventional policy tools can easily address.

When economic setbacks feel temporary, voters may forgive them if they sense improvement. But when economic transformation fundamentally disrupts industries and livelihoods, the political consequences can be far more severe. Even Trump lost re-election amid the COVID-era economic collapse. The displaced manufacturing worker in Pennsylvania or the underwater homeowner in Arizona won’t be reassured by a marginal uptick in GDP if they believe their economic future is slipping away.

Just ask Kamala Harris.

Trump's disruptive economic policy approach – focused on reviving traditional industries through protectionism rather than positioning the U.S. for emerging growth sectors - only exacerbates his vulnerability. His immigration restrictions, while politically advantageous to his base, are worsening labor shortages in key industries, potentially driving wage-price spirals that force the Federal Reserve to keep interest rates high. This monetary policy constraint limits the administration's ability to stimulate growth through fiscal measures without triggering further inflation.

Trump's contentious relationship with the Federal Reserve represents another economic vulnerability. While presidents typically avoid direct confrontation with the central bank, Trump has repeatedly criticized Fed policy. This antagonistic approach reduces policy coordination possibilities during economic stress and creates market uncertainty that can exacerbate downturns.

As Ghilarducci concludes in her analysis, "The economic warning lights aren't merely flashing yellow—they've turned red across multiple sectors." This economic reality creates a political dilemma for an administration that campaigned on economic rejuvenation but now faces recession probability that Ghilarducci estimates at "over 70% within the next twelve months."

The combination of these factors—structural economic transformation, policy constraints, institutional friction, and outsized expectations—creates a perfect storm for Trump's political fortunes. His core supporters expect economic miracles that policy tools alone cannot deliver against global headwinds.

In American politics, it's still the economy, stupid. And for Trump, that simple truth may prove his greatest political vulnerability.