Do elections affect the economy?
Three years go by and the world is operating “regularly.” But, what happens during an election year? Does the economy change when America is potentially changing presidents? Do people’s uncertainties about the future leader cause them to hesitate before making any decision that involves money?
Throughout elections Americans are listening to different people make promises on improving the future of America. The uncertainty people feel during this time is common. They are left wondering if the president’s plans will improve their future, keep their lives the same or make their lives harder.
The economy is directly tied to the candidates and their promises. Because of this, a trend of the economy going up or down each election does not exist.
“Any uncertainty during an election year is mainly resolved by the outcome of the election,” said Dale O. Cloninger, professor emeritus of the school of business. “It works something like a self-fulfilling prophecy: if the electorate expects conditions to improve then they most likely will and vice-versa. As in beauty, election outcomes are viewed through the eyes/minds of the viewers. They will then respond accordingly.”
Wells Fargo put out a report on this subject in June 2016.
“Our results suggest that the general argument that uncertainty during presidential election years results in slower economic activity does not hold water,” the report states. “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.”
The report also stated that there is not a difference in total real government and real federal government spending between election and non-election years.
“The fact that real total government and real federal government spending are not significantly different between election and non-election years suggests that policymakers are not increasing government investment and consumption in election years to support GDP growth. Taken together, these results run counter to the hypothesis that presidential election years bring about a level of uncertainty that results in reduced economic activity.”
Uncertainty about the election outcome can prevent people from making big purchase decisions. Firms will also put off buying new equipment, hiring new employees and/or delay wage increases until the outcome is considered final.
However, if a firm believes a candidate will improve the economy or a change occurs in the firm’s favor, they may decide to put all or most of their money in a big investment.
An article on the Forbes website states, “Oil and gas drillers on the S&P 500 Index have surged 35% since Election Day, investment banks are up over 26% and construction firms have gained nearly 22%.” “Industrial and consumer discretionary stocks are joining in the Trump rally.”
Trends bring comfort to people’s lives. Trends are reliable, but unfortunately, there does not appear to be a trend between the economy and election years. Having an economy trend would make it easier to plan life, but since that is not the case, everyone will just have to keep living life through trial and error.