Election 2016: Politics and the Economy

Incumbent Party Loss Unemployment Rate Incumbent Party Win Year 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 Winner: Kennedy Johnson Nixon Nixon Carter Reagan Reagan Bush Clinton Clinton W Bush W Bush Obama Obama Obama Year

Unemployment Rate in Presidential Election Years Only time since 1960 an incumbent president has won reelection with an unemployment rate above 7% was President Ronald Reagan in 1984. Of the seven presidential elections since 1960 that have seen around 5% in unemployment rate, the incumbent party only lost twice (‘60 – Kennedy, ‘08 Obama) Of the five times the incumbent party won, four were incumbent presidents (Johnson ‘64, Nixon ‘72, Clinton ‘96, George W Bush ‘04), and the other was an incumbent Vice President (Bush ‘88) Oddly, both times the unemployment rate was below 5% (3.6% in ‘68 and 4% in ‘00), the incumbent party lost.

% 3rd Quarter GDP Growth Year Incumbent Party Loss Incumbent Party Win 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2015 Winner: Kennedy Johnson Nixon Nixon Carter Reagan Reagan Bush Clinton Clinton W Bush W Bush Obama Obama Year

3rd Quarter GDP Growth in Presidential Election Years Since 1960, no incumbent party has won presidential reelection with 3rd Quarter GDP Growth equal to or below 2%. Twice has the incumbent party lost reelection with 3rd Quarter GDP Growth above 2% 1968 – Nixon defeats Humphrey (2.8%) 1992 – Clinton defeats George HW Bush (4.2%)

Incumbent Party Loss Incumbent Party Win Current Presidential Approval Rating 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 Kennedy Johnson Nixon Nixon Carter Reagan Reagan Bush Clinton Clinton W Bush W Bush Obama Obama ??? Year

Presidential Approval Rating in Presidential Election Years, 1960-2008 Only twice has the incumbent party lost when the president’s approval rating was between 50%-60% ‘60 Kennedy, [58% for Eisenhower] ‘00 George W Bush [57% for Clinton] Three presidents won reelection as incumbents in this range ‘72 Nixon (59%), ‘84 Reagan (58%), ’94 Clinton (54%) Only once has a challenger from the incumbent party in this range won ‘88 Bush (51% for Eisenhower)

Presidential Approval Rating in Presidential Election Years, 1960-2008 Since 1960, only once has an incumbent party won with a president whose approval rating is below 50%.... ‘04 George W Bush, 47% Incumbent party lost the other five times ‘68 Nixon [42% for Johnson] ‘76 Carter [47% for Ford] ’80 Reagan [37% for Carter] ‘92 Clinton [34% for Bush] ‘08 Obama [31% for George W Bush]

This means…. Democrats will benefit if unemployment continues to decline Republicans will do well if the GDP stays at or close to 2%. The President’s approval rate can either help/hurt his party. Important to track these numbers as it gets closer to Election Day to see if they predict the results.

How can political scientists make predictions about the election using economic data?

Economic Indicators Statistical data showing trends in the economy. Examples are unemployment, housing starts, Consumer Price Index (CPI), industrial production, bankruptcies, GDP-Gross Domestic Product, stock market prices, money supply changes, and housing starts.

Leading Economic Indicators An economic indicator that changes before the economy has changed. Examples of leading indicators include production workweek, building permits, unemployment benefits claims, money supply, inventory changes, and stock prices. The Fed (Federal Reserve Bank) watches many of these indicators as it decides what to do about interest rates.

Coincident Indicators There are also coincident indicators which change about the same time as the overall economy Non-farm payrolls is a popular coincident indicator. Other examples for a coincident indicator include industrial production and personal income. Sales figures from manufacturing and trade are another source for coincident indicator assessment.

Lagging Indicators A measurable economic factor that changes after the economy has already begun to follow a particular pattern or trend. Some examples are unemployment, corporate profits and labor cost per unit of output. Interest rates are another good lagging indicator; rates change after severe market changes.

Everyday Economic Indicators Informal observations that help economists make predictions about the economy.

Skyscraper Boom Indicator Building booms will precede and then coincide with recessions. The taller the buildings-the longer the crisis During the Great Depression: Three of the world’s tallest buildings were under construction. 40 Wall Street Chrysler Building Empire State Building

Hemline Index George Taylor- 1926 Hemlines on women’s dresses rise with stock prices As prices fall, so do hemlines. Beginning of Great Depression 1967- Good economic times

Desserts Index Desserts purchased in restaurants decrease when consumers believe the economy is about to go into a downturn. Also: when the economy is on the rise there will be an increase in the amount of higher priced coffees and lattes.

Taxi Index When consumers feel the economy is weak, they use taxis less With an economic upswing they will start to use cabs more frequently.

Men’s Underwear Index Men will forgo purchasing new underwear during difficult economic times. Research firm Mintel estimated that men’s underwear sales fell 2.3% in 2009, the first time since 2003

Lipstick Index When facing economic crisis consumers will buy less costly luxury goods such as lipstick. After 9/11 sales of lipstick sharply rose People will still buy luxury goods, but they will be more affordable items instead of furs, designer clothes, etc.

Make your own predictions about the 2016 Presidential race Design an everyday indicator or use one of the ones discussed in class Go out into your community and observe consumer behavior. Record your observations Based on your knowledge of past presidential races and the relationship of the race to economic indicators, make a prediction about the outcome of the 2016 presidential race.