Two decades ago, James Carville, the Democratic strategist, observed that it is "the economy, stupid” that matters in elections. This year that slogan is packing a particularly powerful punch, given the high unemployment rate and wider economic gloom.
But as politicians hurl mud ahead of the November 6 vote, investors might do well to ponder at what "the economy, stupid” actually means; or, more specifically, how it is being experienced by voters on the ground, rather than in boardroom suites or lobbyist bunkers.
In the financial markets, it is generally assumed that "the economy” is something defined by GDP data; the figures that excite analysts are data on inflation, say, or output and unemployment.
However, if a recent survey from Absolute Strategy Research, an economics research group, is correct, it is not necessarily the GDP figures that matter to voters, nor even just the jobless numbers.
Instead, a crucial – but oft-ignored – factor that shapes how voters feel is that slippery issue of house prices. And judging from the ASR survey, a subtle-but-significant distinction has opened up between how people perceive those housing prices – and the wider economy – which reflects whether people define themselves as Democrats, Republicans, or part of that ever-swelling group of "independents”.
Now this ASR survey, like all polls, needs to be handled with some wariness. The pollsters surveyed just over 1,000 people, spread across the country (a sample size which is quite small, albeit relatively typical for polls). Since this survey has only been conducted for three years, there is a limited back-run of data and it only covers working-age people.
Nevertheless, even allowing for those caveats, the findings are striking.
For one thing, they reinforce a point that I discussed a couple of weeks ago: namely that American households are now deeply entrenched in a "deleveraging” mindset.
Only 49 per cent of households told ASR they have a mortgage (10 percentage points lower than two years ago), and 29 per cent of households are debt-free (10 percentage points higher than two years back). Meanwhile, 70 per cent of households say that the financial crisis changed their attitudes to debt, 32 per cent hope to reduce debt over the next year and another 38 per cent simply do not want to borrow at all.
Little wonder, then, that credit card debt is at a decade low, and mortgage debt is falling too.
And that retrenchment reflects a real sense of pain. ASR found that 35 per cent of consumers "worried a lot” about their personal finance, a fifth of households considered their job situation "very insecure” and half of consumers are so fearful that they do not want to take any risk at all with their investments.
But that fear is not just down to jobless issues or generalised economic gloom. Instead, as David Bowers, head of ASR, says: "It is housing which is key.” Notably, households which had seen their home fall in value were much more downbeat about all aspects of the economy. And this is a significant group: a third of households say the value of their home is worth less than they paid for it, and almost as many are underwater on their mortgages.
But there are at least two fascinating wrinkles.
One is the fact that some households can see some light at the end of the tunnel. In the summer of 2011, 30 per cent of households were braced for further house price falls and 20 per cent expected to see higher prices. Now, however, the ratio has switched and optimists dominate.
Moreover, there are some intriguing political distinctions. Households which are registered as Democrats and Republicans expressed broadly similar levels of anxiety about job security and finances (although Republicans blamed the problems on government).
However "independents” were far gloomier, compared with Democrats and Republicans. Thus, while 41 per cent of Democrats expect to be wealthier in a year’s time, just 28 per cent of Independents agreed. And, while 38 per cent of Democrats think house prices will rise in the next year, a mere 27 per cent of independents predict this.
So what should investors conclude?
One obvious lesson is the degree to which economic pain has created a floating, disenchanted vote in America (there are more "independents” than Democrats or Republicans).
But another is the crucial importance of watching house prices. After all, if house prices do rise next year – whether due to quantitative easing, mortgage modifications, an enhanced foreclosure system, or anything else – this could have a big economic impact. Conversely, if the market remains flat, voter anger may swell.
Either way, politicians and investors alike would be wise to watch that home price data between now and November 6; it may yet turn out to be almost as crucial as what the next set of jobless numbers do (or do not) say.
Copyright the Financial Times 2012.