Economic activity during US election years

Our friend Rob Chrisman wrote an interesting article regarding economic activity during US election years.  Does the election effect the economy?  More Chrisman can be read by going to www.robchrisman.com.

 

The world is focused on Europe and Brexit, but recently Wells Fargo’s economic team wondered, “Does U.S. economic activity slow in election years?” It has been well documented that the stock market is affected by who is newly elected. When Obama took office in 2009, the S&P 500 and the NASDAQ fell around 5% the day of his inauguration. Most believe, however, that that while the economic backslide may have seemed to indicate that the American public was less than confident in their newly elected leader, the dip was instead widely credited to continued lack of confidence in the failing economy left behind by the previous administration. Either way, confidence in a new leader, and the ability of a market to digest change in a new leader, lead to volatility in the market in the first year after election.

 

With that in mind, there hasn’t been much research on the performance of real economic variables during presidential election years. The general argument is that the uncertainty of who will become the next president and how that will affect the economy results in slower economic activity. Wells Fargo’s economics group findings “suggest that the general argument that uncertainty during presidential election years results in slower economic activity does not hold water. In fact, based on our analysis, we find that real GDP growth, real consumer spending growth, real business fixed investment growth, real disposable income growth and industrial production growth are actually stronger during presidential election years compared to non-election years.” 

 

To prove this and put it into numbers, Wells Fargo took a look at how economic outcomes differ between presidential election and non-election years; they examined the performance of the U.S. economy in presidential election years over the past half-century. They utilized a set of key economic indicators including real GDP, real disposable income, employment and industrial production from 1960 through 2015 on a quarterly basis. Their economists found that median real GDP growth during presidential election years is 1.25% higher than during non-election years.

 

Wells Fargo also looked at if there were any outside factors affecting the results. To do that, they performed a sensitivity analysis adjusting the time period to the “modern era” (1980’s and beyond). Another possibility was a differing number of recessions during presidential and non-presidential years. The final factor of possible influence was who controlled the White House. Looking at each of these areas individually, they found no statistical differences that would change the results. In conclusion, Wells Fargo did not find any evidence of adverse effects on economic activity in presidential election years. Now, make sure to vote because what is slow is the voter turnout rate of 60%.