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What would another recession mean for 2016?

Monday's stock market dip is a reminder that the biggest factor in 2016 is out of candidates' hands.

The Dow Jones industrial average plummeted 1,000 points when the markets opened on Monday morning, rallied almost all the way back, then petered out again to close down 588 points for the day. For investors who were betting on continued growth in China, the latest news is a drag, but it’s not at all clear whether the slowdown and accompanying stock hit means substantially weaker growth or employment in America. Monday’s wild ride is a good reminder, however, that the single biggest factor in the presidential contest – the economy -- is both difficult to predict and out of the candidates’ hands.

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As far as short term presidential politics goes, candidates struggled to find the right angle on Monday. The immediate cause of the decline wasn’t some new disaster in the American economy, but in China, where the stock market is in much more dire straits amid concerns that the country’s runaway growth is finally slowing down. Given that GOP front-runner Donald Trump has spent weeks terrifying voters with dire warnings of China’s “cunning” leaders and their unstoppable economy, it’s not clear where a market correction based on China’s weakness slots into the candidate's message.

Trump kept things vague on Monday, telling followers on Twitter that the weak stock opening was the result of letting China “dictate the agenda.” Trump warned on Instagram that China is “taking our jobs, they’re taking our money -- be careful they’ll bring us down.”

For the first time in a while, however, one of the Republican candidates out-Trumped the billionaire real-estate mogul with a more inflammatory campaign statement. Wisconsin Gov. Scott Walker, who has reportedly been planning a pivot to the right to court Trump voters, called on President Obama to cancel a state visit with Chinese President Xi Jinping – a move that would set off a serious diplomatic confrontation. 

“Americans are struggling to cope with the fall in today's markets driven in part by China's slowing economy and the fact that they actively manipulate their economy,” Walker said. “Rather than honoring Chinese President Xi Jinping with an official state visit next month, President Obama should focus on holding China accountable over its increasing attempts to undermine U.S. interests.” 

New Jersey Gov. Chris Christie tried his best to blame Obama for the turmoil in the markets, saying "economic problems in China are because of the policies of this president."

"Remember that when the Chinese hold this much of our debt, if the Chinese get a cough, we get the flu and that’s what's happening now right now, in my opinion, in our financial markets," Christie said at a town hall in New Hampshire.

It was an odd explanation given that the week's economic news had nothing to do with concerns about America's debts to China. Quite the opposite, investors around the world flocked to U.S. bonds as a safe haven in response to the latest global stock hiccup, pushing interest rates to new lows. 

Looking ahead, it’s not clear if Monday’s stock woes were more than a temporary blip. But it’s worth pausing the speculation that former Secretary of State Hillary Clinton’s e-mail issues will knock her out of the race, or that the GOP’s stance on immigration will doom the party with Latinos, to remember that the economy will likely be a much greater factor than either of these issues in determining who wins in November 2016.

Historically, the economy has gone through a recession about every five years on average since World War II ended. The last recession ended in June 2009, and if growth continues through November 2016 it will be one of the longer periods of expansion in modern history. The consensus among major economic forecasters is modest growth ahead, but it’s surprising how little the possibility of a recession or substantial slowdown is mentioned in the current political conversation, given that many observers consider economic growth an unmatched predictor of which party holds the White House. 

How strong a predictor is a matter of some debate. UCLA political scientist Lynn Vavreck, for example, looks at GDP growth in the first six months of an election year as the strongest factor. If it’s strong, the incumbent party is likely to win; if it isn’t, they’re in trouble. This isn’t to say that campaigns don’t matter – they do – it’s just that both parties are generally competent and well-financed enough that they tend to cancel each other out, leaving the economy as the tiebreaker. 

This model would explain why Obama won re-election despite a relatively weak economy – things still were significantly at the start of 2012 than during the depths of the financial crisis, and voters had enough time to feel the difference. It also raises some counterintuitive ideas – for example, by Vavreck’s reckoning, a modest stock correction now might actually help Democrats down the line.

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“To the extent that we've got what right now is a ‘correction,’ it would actually set up the Democrats for a pretty good scenario in January to June of 2016,” she said. “If we have it now and things slow down for the last couple of months of the year, then by the time we get to January at a lower level the economy is more likely to come back.” 

Other models emphasize growth in real disposable income, decreases in unemployment, among other issues. Emory University professor Alan Abramowitz’s “Time For Change” model factors in how long the incumbent party has held the White House and the president’s approval rating. The “Bread and Peace” model by Douglas Hibbs includes military fatalities incurred in wars of choice as well as economic gains.

Of note: None of the most prominent forecasting models use the stock market as a factor, which is considered more removed from the average American’s lived experience in the economy versus other factors. 

Economy-based models have a mixed record (data journalist Nate Silver is not a fan) and Vavreck puts the GDP-based approach at 75% accuracy since 1948. There are observers who take a more demographic approach, and believe the GOP can’t win the White House without making overtures to voting blocs who spurned them in 2012, especially Latinos. Broadly speaking, though, political strategists of all stripes assume that a new recession would do serious damage to the incumbent party. This isn’t to say the day-to-day stories don’t matter; just that Monday should perhaps make us a little less confident in our bold predictions. There are forces out there bigger than any one gaffe or policy white paper.