With the unemployment rate still at 3.7% and GDP growth at 2.0%, the American economy remains solid, if not spectacular. But with more warning lights flashing yellow, Team Trump is growing more concerned about the direction of the so-called best economy ever just as the 2020 election heats up.
The president and his advisers have good reason to be concerned. Last week, the ISM Manufacturing Index dipped below 50 for the first time in three years, a level indicating contraction in manufacturing by America’s factories. The University of Michigan Consumer Sentiment Index plummeted, too, dropping by 8.6 points, its largest decline since the “Fiscal Cliff” crisis of December 2012. Exactly as predicted, the small bump from the GOP’s Tax Cuts and Jobs Act of 2017 has disappeared, even as that windfall for the wealthy is helping drive Uncle Sam’s annual budget deficit past the one-trillion-dollar mark. Worst of all, the self-inflicted wound that is Donald Trump’s trade war with China is slowing growth, taking a bite out of U.S. manufacturing, and savaging American farmers in precisely those states Trump must carry to stay in office for four more years.
But the surest sign of future trouble comes from a city in a state that Republicans are certain to win next year. Until recently, Elkhart, Indiana, home of America’s recreational vehicle industry, enjoyed robust job growth, strong salaries, and an unemployment rate well below the national average. But with mounting uncertainty about the U.S. economy, sales of motor homes, campers, trailers, and other RVs have begun to drop, taking with them jobs in the industry. And RVs have long been a big-ticket bellwether for the economy, a leading early indicator of its health—or lack thereof.
But what would normally be a major problem for the incumbent president probably won’t matter in the reliably red Hoosier State. After all, President Obama not only saved the American auto industry in Indiana and across the Midwest, but also made Herculean efforts to bring Elkhart back from economic ruin after the Great Recession. Obama’s reward was to get no credit at all. After Indiana went for Obama in 2008, Republicans Mitt Romney and Donald Trump comfortably carried the state four and eight years later.
Not long ago, the economy in the Elkhart-Goshen metropolitan area was described as “bonkers.” In December 2017, employers worried about their ability to hire workers as the jobless rate fell to just 2.4%. In June 2019, the Walton Foundation ranked the area No. 4 on its list of Most Dynamic Metropolitans. But as The Wall Street Journal reported last month, by mid-August the situation was changing rapidly, saying, “Elkhart, Ind., is flashing a warning sign about the economy.”
The next week, on Aug. 26, the AP sounded the alarm, too, in an article titled, “Economists warn falling RV sales signal impending recession.”
It was bad enough that auto sales dropped 1.8% year over year in July, according to industry consultants JD Power and LMC Automotive. Last year’s 4.1% decline in RV sales pales in comparison to the current hemorrhage:
More than 80 percent of recreational vehicles sold in the U.S. are produced in Indiana, and roughly 65 percent of those come from Elkhart County, according to data from the RV Industry Association.
Wholesale shipments of RVs are down 20.3 percent so far this year, and companies such as Elkhart-based Thor Industries Inc. have slashed output and cut back the work week to slow production.
Ball State University economist Michael Hicks said consumers don’t buy RVs and other big-ticket items when money is tight, so economists watch for declines in the RV sector and a slowdown in auto sales as signals of a contracting U.S. economy.
While some of the decline may be explained by dealer inventory management issues, the impact on workers is already being felt. The unemployment rate jumped to 3.6%, up a full point from just 2.6% in April. Kevin Broom of the RV Industry Association pointed to one of the culprits in the drop-off from the record years for the industry. “There is the wild card of the tariffs and the trade dispute being thrown in the mix,” Broom said, “and it’s difficult to tease out how much of an impact those are having right now.”
Well, maybe not that difficult. As Kevin Drum asked after reading the Wall Street Journal article, “Wait. What’s this about rising prices due to tariffs?”
RVs can range in price from about $12,000 for a folding camping trailer to $212,000 for a high-end motor home, according to average retail prices collected by the RV Industry Association. The prices have been sensitive to the U.S. tariffs imposed on some Chinese goods. The industry estimates that as many as 523 items could be hit by the tariffs, everything from the toilet-seat covers that go into RV bathrooms and cow hides for leather furniture to the aluminum or steel used throughout the vehicles.
Divya Brown, the president of Houston.-based TAXA Outdoors, a small RV manufacturer, said her company bought most of its parts from Elkhart. Her suppliers are raising their prices to account for the hit they are taking from imported goods such as aluminum and steel. Ms. Brown said the company saw a 22% jump in the cost of steel and a 9% jump in the cost of aluminum.
And that’s a big problem for Elkhart and for Indiana. The recreational vehicle industry has a $32.7 billion footprint in the Hoosier State, including 126,000 workers earning $7.8 billion in wages. All told, the industry generates some $3.1 billion in tax revenue for the state. It’s no wonder that the president of the Indiana Fiscal Policy Institute warned last week that “the trade war with China threatens to stall the entire manufacturing sector.” And as Ball State’s Hicks cautioned last month, "I think Indiana's economy is far more susceptible to this downturn than most states. I think there's evidence that Indiana is well ahead of the U.S. economy in moving towards recession."
So much for President Trump’s 2018 boast that “trade wars are good, and easy to win.”
But if Donald Trump is a one-man wrecking ball for the economy in Elkhart, Indiana, it’s worth looking back at who saved it a decade ago. After all, Elkhart County’s jobless rate hit nearly 19% in early 2009, when the recession that began in late 2007 caused RV sales to crash. It was President Barack Obama who lavished attention on Elkhart and resuscitated its moribund economy. When Obama left office in January 2017, unemployment in the “RV Capital of the World” was only 3.2%.
Given his performance on their behalf, you would think people in Elkhart and across Indiana would have rewarded Obama and his would-be Democratic successor with their votes. But you would be wrong.
To be sure, Indiana is a traditionally red state. Until Barack Obama narrowly defeated John McCain there in 2008 (see chart above), Hoosiers had voted for Republicans for president in every election since 1964. But 11 years ago, Indiana was in desperate need of some hope and change. The great recession that began in late 2007 was hammering the state. By Election Day 2008, the Indiana unemployment rate of 7.6% was already well above the national average. On Inauguration Day, just two months later, the jobless rate hit 9%. The hemorrhaging didn't stop until a year after that, when the unemployment rate peaked at a staggering 10.9%.
Then things started to change for the state that calls itself "the Crossroads of America." There was the February 2009 Obama stimulus package, which, in addition to tax relief for 95% of working Americans, brought $8.8 billion in American Recovery and Reinvestment Act funding to Indiana. (Though he opposed the $800 billion program, then-Rep. Mike Pence nevertheless requested funds for his district because they would "provide real and long-term economic and livability benefits.") In 2008 and 2009, Barack Obama made four trips to Elkhart to highlight his efforts to reduce an unemployment rate that topped a horrific 20%. Then, in the spring of 2009, Obama followed up on George W. Bush's 2008 loans to Chrysler and GM to launch an $82 billion rescue of the American auto industry. That move, too, was opposed by Donald Trump and his future running mate. As Pence boasted in a 2010 speech in Detroit, "I even opposed bailing out GM and Chrysler. I welcome the rebound of that company with an open heart, but I still think that most Americans know that it would have still been better for GM and for the country if GM had been allowed to go through normal bankruptcy proceedings."
By 2016, The New York Times reported, the landscape in Indiana had changed dramatically for the better: “Since 2010, the private sector in Indiana has added roughly 300,000 jobs, bringing the unemployment rate from a high of 10.9 percent in January 2010 (nearly a percentage point above the national average) to 4.5 percent now (nearly half a percentage point below the national unemployment rate).”
As we'll see below, all of these efforts by the Obama administration in the face of near-total GOP opposition were essential in reversing the fortunes of Indiana voters. But in return, by overwhelming margins, they delivered Indiana to Republicans Mitt Romney in 2012 and Donald Trump in 2016.
In April 2016, The New York Times gave a preview of what was to come—and why—in an article titled, "Obama gets scant credit in Indiana region where recovery was robust." Years after the auto bailout and millions of federal stimulus dollars had gone toward improving local highways, the municipal airport, police equipment, and building weatherization, Elkhart County was booming. "Elkhart's unemployment rate, at 3.8 percent, is among the country's lowest," the Times' Jackie Calmes wrote, "so low that employers here in the self-described R.V. capital of the world are advertising elsewhere for workers, offering sign-up bonuses, even hiring from a local homeless shelter." But when it came to credit for that amazing return to prosperity, there was a bipartisan consensus among local officials that it was not going where it was deserved:
"Whether he gets the credit or not, people's home equity has gone back up, fuel prices are the best we've had in a long time, there's a lot of things that make this all go," Larry Thompson, a former longtime mayor of nearby Nappanee and a Republican, said as he showed off an expanding cabinetry factory, Kountry Wood Products.
"But I think that maybe it's just some of the other things he's been involved with that people in our area" — Mr. Thompson stopped, shaking his head in unspoken reference to various social issues.
[...]
"He gets very, very little credit, and I think that's too bad because we got quite a bit of help," said Dick Moore, Elkhart's mayor the past eight years, a Democrat who lost election to a third term in November. "I don't know what we would have done without it." [Emphasis mine.]
That's exactly right. While the Economic Development Corporation of Elkhart County was touting head of household job opportunities that pay up to $75,000 a year, Dan Browning of the Faith Mission homeless shelter was fielding dozens of calls each month from companies seeking employees. He no longer dealt with businesses offering only minimum-wage work. "Now the employers are desperate," he said in 2016. "Before it was the workers who were desperate."
But that desperation did not translate into gratitude to—or votes for—either President Obama or his would-have-been Democratic successor Hillary Clinton. In 2008, Obama lost Elkhart County by a 55-44% margin. Four years later, he didn't even contest the state, and got drubbed in Elkhart County by 63-36%. In 2016, Donald Trump expanded on Mitt Romney's numbers, beating Clinton by 64-32%. While manufacturing employment statewide had not yet returned to its prerecession levels, some Indiana analysts think something else may be behind the rejection of Obama since 2008:
Brian A. Howey, publisher of the Howey Politics Indiana newsletter and once a reporter in Elkhart, sounded stumped, even allowing for the state's conservatism: "I'm a lifelong Hoosier. I'm just amazed that not only do people not appreciate what happened in '09, but there's a lot of hostility toward Obama. I think part of it is racial and a lot of it is political. This state stood to lose 150,000 auto jobs if Chrysler and G.M. had liquidated," Mr. Howey added. "We would have had a bona fide depression here." [Emphasis mine.]
A bona fide depression, not just in Indiana, but across the entire United States if not for the federal interventions, including the Obama stimulus. As Lori Montgomery of The Washington Post reported in 2012, the nonpartisan Congressional Budget Office certainly thought so. Its director, Douglas Elmendorf, explained to Congress that "CBO's own analysis found that the package added as many as 3.3 million jobs to the economy during the second quarter of 2010, and may have prevented the nation from lapsing back into recession." Economists Alan Blinder and Mark Zandi certainly agreed. As their October 2015 report showed, the combined federal efforts to rescue the American economy from its greatest collapse since 1929 "dramatically reduced the severity and length of the meltdown that began in 2008; its effects on jobs, unemployment, and budget deficits; and its lasting impact on today's economy." The impact of the measures taken in 2008 and 2009 by Presidents Bush and Obama, including the Troubled Asset Relief Program, the $800 billion Obama stimulus program, Obama's auto bailout, and the Federal Reserve's "quantitative easing," is simply staggering. Without those policy responses—almost all of which were opposed by congressional Republicans—Blinder and Zandi estimated:
- The peak-to-trough decline in real gross domestic product, which was barely over 4%, would have been close to a stunning 14%.
- The economy would have contracted for more than three years, more than twice as long as it did.
- More than 17 million jobs would have been lost, about twice the actual number that were.
- Unemployment would have peaked at just under 16%, rather than at the actual 10%.
- The budget deficit would have grown to more than 20% of GDP, about double its actual peak of 10%, topping off at $2.8 trillion in fiscal 2011.
The decision to rescue GM and Chrysler, derided by Donald Trump, Mike Pence, and Mitt Romney, had an outsized impact for Indiana. Ultimately, the federal government spent almost $80 billion to save the two companies. But after it sold off its remaining shares, the price tag was much lower, at $9.3 billion. But as the Center for Automotive Research documented in December 2013, that sum may have been the best investment Uncle Sam ever made: “Had GM and Chrysler failed altogether, the result could have been 4.1 million jobs lost across the U.S. economy in 2009 and 2010, with federal transfer payments and $105 billion in lost income and payroll tax revenue for the U.S. Treasury.”
As the Center's chief economist, Sean McAlinden, put it, "This peacetime intervention in the private sector by the U.S. government will be viewed as one of the most successful interventions in U.S. economic history."
Especially in Indiana. As the The Times of Northwest Indiana documented in August 2013, the Obama administration's actions enabled General Motors to rebound from bankruptcy and invest hundreds of millions of dollars in plants and jobs in Fort Wayne. The north-central Indiana city of Kokomo came roaring back, as Delphi and Chrysler respectively pumped $190 million and $1.6 billion into facilities there. AsThe Times' Joseph Pete summed it up, "Indiana's automotive industry has raced ahead to second place nationally and is not letting off the gas."
When domestic automakers begged for federal bailouts and leniency from bankruptcy judges a few years ago, Indiana pulled ahead of Ohio in the total value of automotive products made each year and also took third place away from Kentucky in terms of jobs at automotive assembly plants, according to the U.S. Bureau of Labor Statistics.
The Hoosier state has since held on to second place, producing $9.9 billion in automotive goods compared with Ohio's $6.9 billion in 2011, the most recent year for which data was available. Indiana trails only Michigan, which churned out $18.8 billion in cars and car parts.
On all of this, the Republican ticket of Donald Trump and Mike Pence was silent during the 2016 campaign in the Midwest. It had to be. "Without government financing — initiated by President George W. Bush in December 2008 — the two companies would not have been able to pursue Chapter 11 reorganization," Obama car czar Steven Rattner wrote in 2012. "Instead they would have been forced to cease production, close their doors and lay off virtually all workers once their coffers ran dry." In February 2012, The Economist blasted Mitt Romney—and itself—over the successful rescue of the American auto industry by President Obama:
Free-marketeers that we are, The Economist agreed with Mr Romney at the time. But we later apologised for that position. "Had the government not stepped in, GM might have restructured under normal bankruptcy procedures, without putting public money at risk", we said. But "given the panic that gripped private purse-strings...it is more likely that GM would have been liquidated, sending a cascade of destruction through the supply chain on which its rivals, too, depended." Even Ford, which avoided bankruptcy, feared the industry would collapse if GM went down. At the time that seemed like a real possibility. The credit markets were bone-dry, making the privately financed bankruptcy that Mr Romney favoured improbable. He conveniently ignores this bit of history in claiming to have been right all along.
Unfortunately, the voters of Indiana, along with those in Ohio, Pennsylvania, and Michigan, ignored this bit of history, too. As that series of New York Times features shows, their distrust of Hillary Clinton, of "people who've been here 12 years who don't even care to learn the language but want to reap all the benefits of this country," and of the "status quo" drowned out Obama's record and Clinton's platform. As Jeff Guo detailed in The Washington Post, "Yes, working class whites really did make Trump win. No, it wasn't simply economic anxiety."
Certain economic factors were important. Trump tended to outperform Romney in places where median incomes were a little lower, places where people tended to be out of work and where middle-aged whites were more likely to die.
But these places have been like this for a while. In fact, Trump's victory doesn't seem to be linked to any recent declines in people's economic circumstances. The economy has been getting better over the past four years. Median incomes have risen. The unemployment rate has plummeted including in regions won by Trump.
"Trump, on some level, understood the importance of making members of the white working class feel as though they were being heard," Guo concluded. "He tapped into deeper, slower-moving resentments."
Heading into 2020, the only question for Democrats is whether any economic downturn can overcome those “deeper, slow-moving resentments.” After all, the unemployment rate in Elkhart County was 20% when Barack Obama narrowly defeated John McCain in Indiana. Eight years later, Elkhart County voted for Donald Trump over Hillary Clinton by a 2-1 margin. Still, Republican County Commissioner Mike Yoder warned last year that Trump’s tariffs on steel and aluminum, combined with retaliatory measures from Canada, could push the RV industry and Elkhart back into recession, saying, “This is a really big deal for us. We export a lot of product and import a lot of product. If this whole trade dispute expands much more, it has serious implications, and we will once again lead the country into a recession, without a doubt.”
Nevertheless, whatever price Trump ultimately pays in November 2020, it probably won’t include losing Indiana—even though he failed in his promise to prevent jobs at Carrier from leaving the state to go to Mexico, just as he failed in the cases of GM and other American manufacturers. And even though President-elect Trump pledged, “I will be the greatest jobs producer that God ever created.”
For the people of Elkhart, Indiana, at least, the numbers show that that title rightly belongs to Barack Obama. It’s too bad they didn’t give him credit for it.