Presidential Elections and the Economy

By Mike Moffatt –
It seems that during every presidential election year we hear that jobs and the economy will be pivotal issues. It’s commonly assumed that an incumbent president has little to worry about if the economy is good and there are lots of jobs. However, if the opposite holds true, he should prepare for life on the rubber chicken circuit.
I decided to examine this common wisdom to see if it holds true, and to see what it can tell us about the upcoming election between George W. Bush and John Kerry. Since 1948 there have been eight presidential elections that have pitted an encumbent versus a challenger. Out of those eight, I chose to examine six elections. I decided to disregard two elections where the challenger was considered too extreme to be elected: Barry Goldwater in 1964, and George S. McGovern in 1972. Out of the six remaining presidential elections, incumbents won three and challengers won three.

To see what impact jobs and the economy had on the economy, we’ll consider two important economic indicators: the growth rate of real GNP (the economy) and the unemployment rate (jobs). We’ll compare the two-year vs. the four-year and previous four-year performance of those variables in order to compare how “Jobs & The Economy” performed during the incumbents presidency, and how it performed relative to the previous administration. First we’ll look at the performance of “Jobs & The Economy” in the three cases where the incumbent won.
Incumbents Who Won
Out of our six presidential elections, we had three where the incumbent won. We’ll look at those three, starting with the percentage of the electoral vote each candidate collected.
1956: Eisenhower 57.4%, Stevenson 42.0%
Real GNP growth (Economy):
Two Year: 4.54%
Four Year: 3.25%
Previous Administration: 4.95%
Unemployment Rate (Jobs):
Two Year: 4.25%
Four Year: 4.25%
Previous Administration: 4.36%
Although Eisenhower won in a landslide, the Economy had actually performed better under the Truman administration than it did during Eisenhower’s first term. Real GNP, however, grew at an amazing 7.14% per year in 1955, which certainly helped Eisenhower get reelected.
1984: Reagan 58.8%, Mondale 40.6%
Real GNP growth (Economy):
Two Year: 5.85%
Four Year: 3.07%
Previous Administration: 3.28%
Unemployment Rate (Jobs):
Two Year: 8.55%
Four Year: 8.58%
Previous Administration: 6.56%
Reagan won in a landslide, which certainly had nothing to do with the unemployment statistics. The economy came out of recession just in time for Reagan’s reelection bid, as real GNP grew a robust 7.19% in Reagan’s final year of his first term.
1996: Clinton 49.2%, Dole 40.7%
Real GNP growth (Economy):
Two Year: 3.10%
Four Year: 3.22%
Previous Administration: 2.14%
Unemployment Rate (Jobs):
Two Year: 5.99%
Four Year: 6.32%
Previous Administration: 5.60%
Not quite a landslide, we see quite a different pattern than the other two incumbent victories. Here we see fairly consistent economic growth during Clinton’s first term as President, but a consistently improving unemployment rate. It would appear that the economy grew first, then the rate of unemployment decreased, which we would expect since the unemployment rate is a lagging indicator.
If we average out the three incumbent victories, we see the following pattern:
Incumbent 55.1%, Challenger 41.1%
Real GNP growth (Economy):
Two Year: 4.50%
Four Year: 3.18%
Previous Administration: 3.46%
Unemployment Rate (Jobs):
Two Year: 6.26%
Four Year: 6.39%
Previous Administration: 5.51%
It would appear then from this very limited sample that voters are more interested in how the economy has improved during the tenure of the presidency than they are in comparing the performance of the current administration with past administrations.
We’ll see if this pattern holds true for the three elections where the incumbent lost.
Incumbents Who Lost
Now the three incumbents who lost.
1976: Ford 48.0%, Carter 50.1%
Real GNP growth (Economy):
Two Year: 2.57%
Four Year: 2.60%
Previous Administration: 2.98%
Unemployment Rate (Jobs):
Two Year: 8.09%
Four Year: 6.69%
Previous Administration: 5.00%
This election is quite an unusual one to examine, as Gerald Ford replaced Richard Nixon after Nixon’s resignation. As well, we are comparing the performance of a Republican incumbent (Ford) to a previous Republican administration. Looking at these economic indicators, it is easy to see why the incumbent lost. The economy was in a slow decline during this period, and the unemployment rate jumped sharply. Given the performance of the economy during Ford’s tenure, it’s a little surprising that this election was a close as it was.
1980: Carter 41.0%, Reagan 50.7%
Real GNP growth (Economy):
Two Year: 1.47%
Four Year: 3.28%
Previous Administration: 2.60%
Unemployment Rate (Jobs):
Two Year: 6.51%
Four Year: 6.56%
Previous Administration: 6.69%
In 1976 Jimmy Carter defeated an incumbent president. In 1980 he was the defeated incumbent president. It would appear that the unemployment rate had little to do with Reagan’s landslide victory over Carter, as the rate of unemployment improved over Carter’s presidency. However, the last two year of the Carter adminstration saw the economy grow at a paltry 1.47% per annum. The 1980 Presidential election suggests that economic growth, and not the unemployment rate, can bring down an incumbent.
1992: Bush 37.8%, Clinton 43.3%
Real GNP growth (Economy):
Two Year: 1.58%
Four Year: 2.14%
Previous Administration: 3.78%
Unemployment Rate (Jobs):
Two Year: 6.32%
Four Year: 6.44%
Previous Administration: 7.80%
Another unusual election, as we are comparing the performance of a Republican president (Bush) to another Republican adminstration (Reagan’s second term). The strong performance of third party candidate Ross Perot caused Bill Clinton to win the election with 43.3% of the popular vote, a level usually associated with the losing candidate. Republicans who believe that Bush’s defeat lies solely on the shoulders of Ross Perot should think again. Although the unemployment rate decreased during the Bush administration, the economy grew at a paltry 1.58% during the final two years of the Bush administration. The economy was in recession during the early 1990s and voters took out their frustrations on the incumbent.
If we average out the three incumbent losses, we see the following pattern:
Incumbent 42.3%, Challenger 48.0%
Real GNP growth (Economy):
Two Year: 1.87%
Four Year: 2.67%
Previous Administration: 3.12%
Unemployment Rate (Jobs):
Two Year: 6.97%
Four Year: 6.56%
Previous Administration: 6.50%
In the final section we’ll examine the performance of Real GNP growth and the the unemployment rate under George W. Bush’s administration, to see if economic factors will help or harm Bush’s reelection chances.
How Are Dubya’s Chances?
Let’s consider the performance of jobs, as measured by the unemployment rate, and the economy as measured by the growth rate of real GDP, under George W. Bush’s presidency. We only have data up to and including the first three months of 2004, so we will have to use that for our comparisons. First, the growth rate of real GNP:
Real GNP Growth
Clinton’s 2nd Term: 4.20%
2001: 0.5%
2002: 2.2%
2003: 3.1%
2004: 4.2% (First quarter) 37 Months Under Bush: 2.10%
Last 15 Months: 3.32%
and secondly, the average unemployment rate:
The Unemployment Rate
Clinton’s 2nd Term: 4.40%
2001: 4.76%
2002: 5.78%
2003: 6.00%
2004: 5.63% (First quarter) 37 Months Under Bush: 5.51%
Last 15 Months: 5.92%
We see that both real GNP growth and the unemployment rate have been worse under the Bush administration than they were under Clinton in his second term as President. As we can see from our real GNP growth statistics, the growth rate of real GNP has been rising steadily since the recession at the beginning of decade, whereas the unemployment rate is continuing to get worse. By looking at these trends, we can compare this administration’s performance on jobs and the economy to the six we have already seen:
Lower Economic Growth than the Previous Administration: This occured in two cases where the incumbent won (Eisenhower, Reagan) and two cases where the incumbent lost (Ford, Bush)
Economy Improved In the Last Two Years: This occured in two of the cases where the incumbent won (Eisenhower, Reagan) and none of the cases where the incumbent lost.
Higher Unemployment Rate than the Previous Administration: This occured in two of the cases where the incumbent won (Reagan, Clinton) and one case where the incumbent lost (Ford)
Higher Unemployment Rate in the Last Two Years: This occured in none of the cases where the incumbent won. In the case of the Eisenhower and Reagan first term administrations, there was almost no difference in the two-year and full-term unemployment rates, so we must be careful not to read too much into this. This did, however, occur in one case where the incumbent lost (Ford).
While it may be popular in some circles to compare the performance of the economy under Bush Sr. to that of Bush Jr., judging by our chart they have little in common. The biggest difference is that Dubya was fortunate enough to have his recession right at the beginning of his presidency, while the senior Bush was not so lucky. The performance of the economy seems to fall somewhere in between the Gerald Ford administration and the first Reagan administration. That, coupled with all the non economic issues such as the war in Iraq, makes it difficult to tell if George W. Bush will end up in the “Incumbents Who Won” or the “Incumbents who Lost” column. As of May 7, 2004, Internet trading site gives George W. Bush a 60% chance of winning the upcoming election, showing that the betting public is split on the President’s chances as well.
Source: About Economics

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