How the 2016 Presidential Election is Impacting the Economy

Nov 04, 2016

2016 ElectionAs Hillary Clinton and Donald Trump continue the struggle in the last week of an especially acrimonious and polarizing presidential campaign, preoccupation with the race along with uncertainties and anxieties surrounding its potential outcome seem to have given rise to some intriguing economic conditions in the country. Here are just a few of the ways in which many experts believe the 2016 presidential election may be affecting the U.S. economy:

Hiring decisions and raises put on hold: Could the unpredictable political climate be causing employers to take a wait-and-see approach to recruiting talent and increasing wages?  That depends, as a study conducted by the payroll, human resource and benefits provider Paychex reveals. Findings from the Paychex Small Business Snapshot indicate that larger companies are more likely to consider the presidential election to be a factor influencing hiring and wage increases, but that smaller businesses are less apt to view the election as a significant factor in these decisions. Among the businesses surveyed, 74 percent of companies with 100- 500 employees said that the election was impacting hiring and wage increases, while only 14 percent of companies with 1-19 employees made this same claim.

Slump in business investment: Spending on fixed assets such as real estate, equipment and technology fell during the first half of 2016, contributing heavily to slow growth in the country’s gross domestic product (GDP) and the overall economy.  According to some economists, this slowdown in capital spending can be at least partially attributed to businesses that are hesitant to make long-term investments with a high stakes national election still hanging in the wind. On the other hand, it can also be argued that the lower demand for American made goods overseas and the sluggish pace of the recovery from the recession explain the drop in capital spending (source: U.S. News & World Report).

A tumultuous stock market: Historically, markets have tended to perform better in presidential election years when an incumbent pursues reelection and when the outcome of the race is more predictable. As a case in point, the S&P 500 (Standard & Poor’s benchmark based on 500 large U.S. companies) has had negative returns averaging about 4 percent when a sitting president must leave office after having served two terms. This data is in stark contrast to presidential election years in general, in which the S&P 500 has averaged about a 7 percent gain (source: Money magazine). On the surface, the fact that a new president must be elected this year coupled with the lack of predictability in the upcoming election might seem to suggest that investing in large cap stocks could be a poor investment choice in 2016. However, this would be an overly simplistic view, especially given that most financial advisors generally recommend that people invest in stocks for the long haul.

An increase in Halloween spending: As odd as it may seem, Americans are inclined to spend more money on Halloween treats, costumes, decorations and more during a presidential election year. Some explain this curious phenomenon as the need for escapism and warmer connections with others, while others attribute it to the relevance of politically-themed costumes or a sign of consumer confidence that accompanies the hopes for positive change. Regardless of the reasons, the National Retail Federation puts the estimated spending on Halloween at $8.4 billion this year—the highest it has ever been.

The Christmas shopping season is getting pushed back: While this year’s election may be boosting spending on Halloween, it seems to be temporarily reversing the trend toward “Christmas creep” in which retailers have been introducing holiday-themed items before the traditional start of the holiday shopping season. As Money magazine points out, most retailers seem to be waiting until after the election has ended to hold major sales or to launch their holiday advertising campaigns. This way, the retailer’s messaging won’t be eclipsed by the current focus on the election.

A surge in ad spending: Finally, we would be remiss not to mention two areas of the economy that have profited tremendously from this year’s election—advertising and broadcasting. In an August 15 blog, the Washington Post declared that the campaign season had boosted sales at broadcast company E.W. Scripps Co. to $8.4 million in just one quarter. And in terms of total political ad spending in the 2016 election cycle, research and consulting firm Borrell Associates projects that it will reach $11.7 billion.

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