It’s an election year in the US, in case you needed a reminder.

In more normal domestic political circumstances, you’d be inclined to suspect a record-setting jump in gas prices, record-low consumer sentiment and an unpopular war in the Mideast bode poorly for the party that controls the government.

But these circumstances are the furthest thing from normal, with the not insignificant caveat that I don’t think I could define “normal” if pressed. The GOP looks, in places, like a personality cult. Legal scholars almost universally agree that voting rights are being eroded. And some worry the White House will consult the autocratic playbook to ensure the playing field isn’t entirely level in November.

(That latter assessment doesn’t mean armed guards or ballot-stuffing. Remember: Many soft autocracies still hold generally free, generally fair elections. And sometimes, the autocrat loses. Badly. Just ask Viktor Orban. The point is just that you’d be totally remiss, not to mention naive, not to read the writing on this particular wall.)

A complicating factor is the ambiguous nature of the economy. As noted, consumer sentiment polling would have you believe things have never been worse. On the affordability front, that’s probably true. But between the wealth effect from record-high stocks and home prices and AI-related capex, growth’s doing ok.

There’s an asterisk, though. The war-related spike in headline inflation’s beginning to eat away at wage growth which, as discussed here on Friday, is now negative for the first time in three years. If that persists, it could eventually weigh on spending, particularly if the rise in bond yields doesn’t abate, capping stock gains and thereby crimping the wealth effect in the upper-half of the “K,” the source of most discretionary outlays.

By almost every account, hiring’s robust. Note the emphasis on “almost.” Although no one trades the employment level from the household survey in the BLS’s monthly jobs report, it’s worth reiterating that the series fell a fourth month in April.

There’s the chart. As I put it on May 8, while editorializing around a big beat on the establishment survey readout, “Thank God no one cares about or trades that series.”

Macro watchers aren’t strangers to a disparity between the NFP headline and the household survey series. This is a fixture of the discourse.

For reference, the updated figure below shows you the cumulative divergence  between two series from January of 2021.

The yellow shaded area includes the juxtaposition between consecutive NFP beats (in March and April) and four straight declines on the household survey.

Any committed macro bear can spin a yarn about the allegedly foreboding signal from that “incongruity.” Without wanting to pass judgment on the merits of such stories… well, suffice to say there’s a reason no one trades the household survey.

However, it’s worth asking what history says about four straight declines on the household side. BMO’s Ian Lyngen has the answer.

The figure above, from his latest, shows you the trajectory of the UNR following five historical instances of four straight negative household employment prints.

“Such persistent job losses in the household survey tend to precede a rise in the unemployment rate over the coming months, quarters, and in some cases, years,” Lyngen remarked.

He cautioned against reading too much into those analogues. Past isn’t always precedent, and “in the present cycle, the household survey is subject to the noise associated with declining response rates and changes in immigration policy.”

Even so, the signal shouldn’t be dismissed out of hand. As Lyngen went on to say, “if the trend of negative readings for household survey employment continues in the coming months, the unemployment rate may soon be on the rise.”

A rising unemployment rate into the midterms would be bad enough on its own for the party in power. When paired with elevated inflation, it’d be a pretty damning indictment, particularly in the context of a GOP which habitually insists (against almost all evidence, I should add) to have an unassailable claim on a better track record for managing the economy.

The figure above, from BofA’s Michael Hartnett, shows you where headline CPI would be in or around November if the MoM pace witnessed in April were to persist.

Inflation running north of 5% and a climbing UNR would put stagflation on the midterm ballot. And do note that even if headline CPI somehow manages to average a mere 0.1% MoM gain looking out six months (that isn’t plausible), it’d still be running a full percentage point above the Fed’s target.

“Main Street anger on affordability and inequality is the quickest route to lose the electorate,” Hartnett said, noting that Trump’s single-issue approval rating on inflation is now near the Joe Biden lows.