The President’s Re-Election Chances and The Economy – Some Data from Intrade

by robekulick

It is conventional wisdom at this point that the President’s  re-election, at one point almost taken for granted, is suddenly in jeopardy because of the poor performance of the economy. In a very surprising trend for me, this will be the second post I do this week providing statistical evidence for the conventional media wisdom.

This is a graph plotting the Intrade chances of President Obama being re-elected versus the Intrade chances of the US economy going into recession in 2012.

The top series in blue represents the President’s chances of re-election, the bottom series in red represents the chances of recession in 2012 and I put trend lines through both data series. Obviously from this graph there seems to be a strong connection, but exactly how strong is the connection?

I calculated the correlation coefficient between the two and found a correlation of -0.90. Correlation is a measure of the linear relationship between two data series that ranges from -1 to 1, with -1 being perfect negative correlation and 1 being perfect positive correlation. A coefficient of -0.90 represents a very strong negative correlation. In fact, practitioners will often regard a correlation of -0.50 as being quite strong, so -0.90 really stands out to me.

So as I said this confirms the conventional wisdom, but there is a subtlety here. Generally, the conversation in the media is about how the past poor performance of the economy is weighing on President Obama. But what this graph and the correlation show, is what seems to be driving President Obama’s re-election chances down is actually expectations of bad economic performance in the future.

 

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