Growing economy could cost the GOP prized Senate seats

Most of my fellow Republican strategists — and even many non-partisan pundits — have been quick to predict a Republican takeover of the U.S. Senate. If Republicans are to be successful in November, they will likely have to work against the growing tide of positive economic news, which will help some incumbent Democrats. While there are a number of key data points we Republicans use to justify our optimism, there is also a failure by most to recognize the implications of these recent economic gains.

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History suggests positive economic trend lines always benefit the party in power, and current economic trend data suggests Democrats will lose fewer congressional seats than expected. So, while most spend their time debating whether Republicans will pick up six, seven, or eight U.S. Senate seats, the real question to ask is: has the economy improved fast enough this year to deny the GOP control of the Senate?

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At this point, few question whether Republicans will make gains in the Senate and expand their majority in the House — and rightly so. Between a second term plagued with problems for President Obama and an electoral map providing Republicans more opportunities in GOP-friendly states and districts, it seems likely that Election Day 2014 will swing the pendulum back towards the political right. Consider the following:

  • President Obama's job approval/disapproval rating currently stands at 42 percent/52 percent, according to Real Clear Politics.
  • President Obama's average approval among voters in the ten Democratic seats currently listed by The Cook Political Report as leaning Republican or toss-up is 36 percent, according to recent Gallup data.
  • Republicans currently have the lead in seven Senate races in states currently held by Democrats and are within one point in another state (note: the ballot cited in the Louisiana Senate race is the likely head-to-head runoff on December 6 between Democrat Mary Landrieu and Republican Bill Cassidy).
  • •Republicans have an enthusiasm edge — voters who support Republican candidates this fall are 8-percent more enthusiastic about voting than voters who support Democratic candidates.

On the surface, the fundamentals of the midterms suggest an expansion of the current advantage in the House and a takeover of the Senate; however, Republicans should exercise caution when thinking ahead to November. Historically, an uptick in the economy suggests the party out of power will see more limited gains, possibly down to just a handful of House seats and even a seat or two shy of a majority in the Senate.

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The Conference Board's Present Situation Index (PSI), a model frequently used by economists, measures overall consumer sentiment toward current economic conditions and comprises roughly 40 percent of the Consumer Confidence Index. It is here that Republicans should look before writing any victory speeches (see chart below).

  • Ronald Reagan. In 1986, PSI fell nearly 13 percent from 97.8 in January to 85.4 in October, just before the mid-term elections of Ronald Reagan's second term. Republicans lost eight seats in the Senate and five seats in the House.
  • Bill Clinton. In 1998, PSI grew nearly 4 percent, from 159.3 in January to 165.2 in October, just before the mid-term elections during Bill Clinton's second term. In fact, PSI reached its second highest all-time number (172.9) just three months before the mid-terms. Voters rewarded the president's party, as Democrats picked up five seats in the House (neither party picked up/lost seats in the Senate), marking the first time since 1822 that the party not in control of the White House failed to gain seats in the mid-term election of a president's second term.
  • George W. Bush. In 2006, PSI fell nearly 3 percent from 128.8 to 125.4, just before the mid-term elections during George W. Bush's second term. Republicans lost six seats in the Senate and thirty seats in the House.
  • Barack Obama. Since January of this year, President Obama has presided over an economy in which consumer sentiment has risen by 15 points.

Given the prominent role of consumer confidence, and specifically the Conference Board's PSI, in predicting elections (no incumbent president has been re-elected when the PSI trend line is negative), President Obama's positive economic trend cannot be ignored. At least a few races that Republicans expect to win will likely remain in Democratic hands.

Politically concerning for Republicans is the fact that, while still moderate, voter optimism vis-à-vis the economy is increasing — at least in part fueled by recent news highlighting 4.2 percent Gross Domestic Product (GDP) growth in the second quarter. In an NBC-Wall Street Journal poll taken last October, just 17 percent of Americans said they expected the economy to get better in the next twelve months, while 42 percent said they expected it to get worse. This June, 27 percent said they expected the economy to get better in the next twelve months, while 24 percent said they expected it to get worse.

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Additionally, just 19 percent of Americans say they are worried they will be laid off in the near future, the lowest since 2008, according to a recent Gallup poll. This suggests a growing confidence among American workers in the job market. Further, just four of the ten toss-up or lean Republican states now held by Democrats have an unemployment rate higher than the national average, indicating that voters in these states may be seeing a rosier picture of the economy than voters nationally.

That's not to say all economic news has been good. GDP growth for the first half of the year averaged 0.9 percent, and economists expect growth for the full year 2014 to be around 2 percent, according to a recent Wall Street Journal survey, which would hardly indicate a booming economy. And, in the most recent NBC-Wall Street Journal survey, 49 percent of Americans said they believe we are in an economic recession (it should be noted, however, that the trend line is decreasing for this question as well, as 58 percent of Americans said the same in the May 2013 NBC-Wall Street Journal survey). And, for many low and middle-income voters, real income is actually lower.

It's also true that in all of the previous midterm elections discussed — and as will be the case in 2014 — other factors shaped the outcome of the races. The Iran-Contra scandal was gaining steam heading into the 1986 midterms, and President Clinton benefited from the perceived overreach by congressional Republicans during the Monica Lewinsky ordeal. President Bush, who was presiding over a relatively strong economy in 2006, saw his party hurt by the growing unpopularity of the Iraq War and a significant number of disparate scandals and ethical lapses by Republican Members of Congress. President Obama will likely be hurt by a weak foreign policy.

In 2014, as in all of these past midterms, the final results will also be shaped by the potential for nationalization of the election as a whole. For example, 2006 was highly nationalized. But, political observers may recall the chorus of some senior Democrats who were surprised that Republicans didn't do even worse, suggesting they should have lost as many as ten more seats in the House. However, despite some minor decline in consumer confidence as the 2006 election approached, the economy was strong throughout most of that year, which likely helped blunt further Republican loses.

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Despite problems with Obamacare—which are both real and having negative impacts on the economy, particularly among some small-business owners — 2014 doesn't appear to be overly nationalized, at least not yet. So far, what's happening in many of these Senate races has largely been localized, as Senate Democrats try to distance themselves from the president. This could change, of course, but given that we've had an eventful summer on the world stage without much obvious impact on domestic politics, I don't expect it will. A nationalized election this year would be good for Republicans. Localized elections will at least not be bad for Democrats.

Even with an improving economy and an election that is more localized than nationalized, Republicans can still win control of the Senate and pick up seats in the House, but we will need a ground game that turns out Republicans and conservative Independents, the likes of which hasn't been really run since the 2004 presidential election. While the GOP has recruited strong candidates, raised a considerable amount of money, begun to address the technological gap between themselves and the Democratic Party, and have stayed relatively gaffe free to-date, this election is likely to come down to just a few races that will be very close. Republicans will need to run a nearly flawless campaign in the last eight weeks if they want to be happy with the results on November 4.

As manager of the New York Mets, Yogi Berra popularized the phrase, "It ain't over 'til it's over." Republicans across the country would be wise to keep that lesson in mind, and work like we're down two in the bottom of the ninth, as we approach Election Day.

Sara Taylor Fagen is a partner at DDC Advocacy and a former Political Director for President George W. Bush. She is also a CNBC contributor. Follow her on Twitter @sarafagen2.

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