In a recent U.S. News story, I took a look at what some computer models are predicting about the 2004 presidential election. These models usually look at some combination of economic and political factors to make their forecasts. One highly regarded election-forecasting model, has been devised by Yale economist Ray Fair. Fair’s model—which, specifically, predicts the share of the two-party vote that the candidate from the incumbent party will win-mainly takes into account the economy’s performance over the 15 quarters before an election. The key variables are inflation and the total number of what Fair calls "good news" quarters—the number of quarters with per-capita GDP growth above 3.2 percent. To capture the financial mood of voters right before the election, Fair also factors in real per-capita GDP growth in the first three quarters of an election year.
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And how does Fair forecast what all those numbers are going to be in the coming months? By consulting a sophisticated model of the U.S. economy that he’s also devised. In addition to weighing economic factors, Fair’s political model also gives an edge to incumbents and penalizes a candidate if his party has been in the White House for the past two terms.
Fair has just updated his forecast using economic data through last week. He is now predicting that President Bush will win 58.7 percent of the two-party vote, up from 58.3 percent in his October forecast.
Now I have a great deal of skepticism about computer forecasting models. But since creating his model of voting behavior in 1978, Fair’s forecasts have been uncanny in predicting the vote share of the incumbent party. In six elections, the model has been as close as 0.2 percentage points (in 1980) and never off by more than 1.9 points (in 1988). Using data from all presidential elections since 1952 to "post-dict" the outcomes, Fair’s average deviation is only 2.12 points.
Since my original piece on Fair’s model, an economic research firm called Macroeconomic Advisers (founded by former Federal Reserve governor Lawrence Meyer) issued a study that tweaked Fair’s model by eliminating the political component and substituting a couple of different economic variables that it determined were more statistically significant. Instead of using GDP as a measure, for instance, Macroeconomic Advisers punches in the annualized percentage change in real disposable personal income over the three quarters immediately prior to the election quarter. The firm also found that housing starts are a statistically significant measure of how voters view the economy–unlike the widely touted consumer confidence numbers. (The reasoning: If you’re going to build a new house, you’ve got to be pretty upbeat about where the economy is heading.)
After plugging in the most recent data, Macroeconomic Advisers found that their version of Fair’s model give Bush 60.8 percentage of the two-party vote. And when the firm backtested its model to 1952, it proved even more accurate than Fair’s, missing by an average of just 1.21 percentage points. Oh, and if you plug in the firm’s economic forecast into Fair’s original forecasting model, Bush gets an even greater 61.9 percent of the vote.
