Donald Trump and Kamala Harris offer two starkly different perspectives on how best to manage the US economy and what changes are needed to put the country on the right path.
Whichever candidate wins will undoubtedly have a major impact across three key economic factors that weigh on the retail industry: inflation, consumer spending, and regulation.
After a two-and-a-half-year battle, inflation is moving toward the US Federal Reserve’s 2% goal, setting the stage for more rate cuts, lower borrowing costs, and possibly the much awaited soft landing.
Harris’ economic policies would have a limited effect on inflation.
Harris wants to institute a price-gouging ban on food and groceries. The policy mirrors those in place in 37 states, which prohibit large corporations from exploiting crises such as floods, hurricanes, or a pandemic. However, given the policy’s limited scope, it is unlikely to move the needle on inflation.
Trump’s proposals risk reigniting inflation. The majority of economists surveyed by The Wall Street Journal in July expect Trump’s economic plans would lead to higher inflation than Harris’ proposals.
Prices could rise by as much as 6% to 9.3% based on three central elements of the Trump campaign:
While sentiment remains below historic norms, consumers continue to spend. We expect US retail sales to rise 2.8% year over year this year and growth to remain around 3.0% through 2028.
Harris’ housing policy could have knock-on effects in the retail realm. Elevated interest rates and limited supply made it far harder for prospective homebuyers, stymying both the housing and home improvement markets. Between 2021 and 2024, the average monthly payment for a first-time homebuyer rose roughly 86%, per the National Association of Realtors.
Harris has called for increasing both supply and demand by building 3 million new housing units over four years and offering first-time homebuyers $25,000 in down payment assistance. The policy, in concert with the Fed’s expected interest rate cuts, could help unfreeze the stagnant housing market. In turn, that could lift a wide array of retailers and brands—including home improvement, furniture, and consumer electronics sellers—that struggle when fewer consumers move.
Her campaign also plans to restore the American Rescue Plan’s popular child tax credit expansion—which increased the credit up to $3,600 per child from $2,000—and add a new child tax credit of up to $6,000 for middle- and lower-income families for children in their first year of life.
Sentiment among Republicans would rapidly rise. There’s a strong correlation between impressions of the economy and partisan leanings. Just as the 2020 election and the issuance of stimulus checks under the American Rescue Plan led Democrats’ sentiment to tick up, a similar situation will likely unfold among Republicans—especially if the Fed continues to cut interest rates. That should drive those consumers to loosen their purse strings, at least in the short term.
A Trump victory, and continued interest rate cuts, could also make businesses feel more confident about the economy, leading to more hiring and investment. That would be a welcome shift for a labor market that saw layoffs increase and job openings fall in September to the lowest level since early 2021.
But over time, rising prices would cause nominal retail sales to rise even as real sales decline. We can look back just to 2022—when supply-chain shocks caused inflation to spike. Rising prices led retail sales to grow 8.0% even as basket sizes shrank, and discretionary spending dipped. (Sporting goods sales, for example, fell 2.0%.)
The situation shifted consumer shopping habits in ways that still linger. Consumers traded down to private labels and shifted spend to less expensive retailers such as Aldi, Walmart, and Temu. However, many of the retailers that benefited from the last surge of inflation may struggle to keep prices low if they’re facing steep tariffs.
Trump’s plan to deport millions would dampen consumer demand.
Antitrust has support on either side of the aisle. Both Sen. Bernie Sanders and vice presidential candidate J.D. Vance are vocal supporters of FTC Chair Lina Khan. But the latitude that the FTC and DOJ have to investigate cases would likely differ under Trump and Harris.
Both the FTC and DOJ would likely continue to challenge companies’ merger plans, business practices, and pricing power.
Electric vehicle (EV) adoption would continue its upward trajectory under Harris.
Trump’s administration would likely apply a softer touch to antitrust enforcement, although it is possible that Vance could push for a tougher approach.
The EV industry could stagnate—or even decline—under Trump. A Trump administration would likely try to get Congress to eliminate those tax credits for EV purchases, which could have a significant impact on adoption given that EVs are, for the time being, more expensive than gas cars.
First Published on Oct 30, 2024