While the current US presidential election has been described as unprecedented, and even downright bizarre, the country’s economic performance leading up to and immediately after Election Day is likely typical of previous presidential election years.
Dun & Bradstreet recently looked at key economic metrics from 1992 to the present during the final three months of presidential election and nonpresidential election years. D&B also examined what happened when one political party lost power and was replaced by a rival party.
Key Metrics Exhibit Seasonal Weakness for Consumers and Businesses
Historically, consumers tend to spend less and businesses invest less when elements of uncertainty exist — political uncertainty is no different. Since 1992, according to the University of Michigan’s Consumer Sentiment Survey, the consumer on average has recorded only slight improvement in overall sentiment (both current and future expectations) during an election year, rising sequentially on average by only half (0.3%) when compared to a nonpresidential-election year (0.6%). In addition, during years when a newly elected official was a member of a different political party, weakness was more pronounced and declines were recorded. (See Chart 1).
Traditionally, consumer sentiment indicates current spend as well as future intentions of the consumer. If sentiment is historically weaker or weakening, then we can expect weakness to show up in private consumption (nearly 70% of US GDP). Measures of spend such as total retail sales on average declined 0.1% during Q4 from Q3 in an election year, compared to a robust average increase of 1.4% during the same period of a nonelection year, as seen in Chart 2. While an election can be an exciting time, US consumers tend to delay purchases — whether glued to the TV during the fall or because of uncertainty — and to forego consumption. Looking at the detail beyond the headline, more expensive purchases of motor vehicles, furniture, and appliances are even weaker than less expensive purchases for clothing as consumers tend to “push off” major purchases.
The supply side of the US economy traditionally remains weak as well. Businesses tend to delay hiring and investment during Q4 of a presidential election year. Both nonfarm hiring and real private nonresidential fixed investment remain weaker when compared to nonelection years, as seen in both Chart 3 and Chart 4. Again, weakness is more pronounced after the election when a change in the affiliated party of the presidency takes place.
While we expect elements of Q4 growth to be hamstrung by uncertainty surrounding the political outlook once the election has been decided, most of the major metrics on average rebounded or accelerated during the first three months of the following year, excluding 2009, when the US was in the throes of the global financial crisis.
Given the pattern of historical data, businesses that rely on US consumer spending for growth should expect weaker than normal spending during the final quarter of 2016. Specific segments that will likely be affected include retail, with deeper negative impacts being recorded among motor vehicles and parts dealers as well as home furnishing and appliance stores. In addition, firms that rely upon business investment for growth including verticals such as information technology or companies that provide business services such as employee payroll services may experience a quarter of weaker than normal activity, given likely delays to business spending and hiring. Keep in mind, though, that growth should pick up once the election is over.
Additional uncertainties remain, particularly regarding whether the unpopularity of each candidate could factor into the severity of the expected slump among key metrics. Continuity — meaning a win by the Democratic Party nominee — has historically provided a better economic outcome because more certainty remains a cornerstone of economic growth.
Adam Morehouse is a Macro Analytic Consultant on D&B’s Global Data, Insight & Analytics team. He covers parts of the Asia/Pacific region as a contributor to D&B Macro Market/Country Insight Products. He also contributes to D&B’s monthly economic tracker, adding both commentary and analysis. Adam holds a BBA in finance from James Madison University in Harrisonburg, Virginia, and an MBA in financial management from Pace University in New York City.