Employers are keeping a close eye on the economy and the markets in the next two months as a wild presidential race engulfs the country. They are asking: Should they increase hiring, freeze it or cut back?
Many experts say the economy is relatively stable and they expect slow but steady growth in the months ahead with the unemployment rate remaining at about 5 percent.
“The economy is moderately healthy. It has created jobs at a very impressive rate during the last three years,” says Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C. Baker sees continued economic and job growth, but perhaps at a slightly slower pace than the first half of 2016.”
Uncertainty = apprehension for small biz
Hillary Clinton and Donald Trump have different tax proposals and both have called for infrastructure investments and other ideas to generate job growth. But uncertainty remains about their proposals and what the outcome of the election will mean for the economy. Small business owners are among those nervous about what lies ahead.
A 2016 Bank of America Small Business Owner Report, for example, found that only 29 percent of small business owners surveyed feel confident that the national economy will improve during the next year. In addition, 67 percent say the presidential election will affect their business “a lot” or “somewhat.”
“Anxiety is high regarding the impact of the fall elections, the effectiveness of U.S. government leaders and health care costs, possibly explaining why small businesses are taking a wait-and-see approach before making plans for hiring and growth,” according to the Bank of America report.
While the outcome of the presidential race is still unknown, history suggests the markets respond far better to elections whose outcomes are predictable.
“The market appears to have decided not only that [Hillary] Clinton will win, but that it won’t be close,” David Woo, a strategist at Bank of America Merrill Lynch, says in a report distributed on Labor Day. “Investors like landslide victories.”
While the economic and political circumstances of every election year are different, a Wells Fargo Securities study published in June suggests the theory that uncertainty during a presidential election year results in slower economic activity “does not hold water” based on historical data.
“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 says. The exception, of course, was 2008 when the nation was in the midst of the worst economic recession since the Great Depression.
Attention leaders: Stay the course
Bryan Caplan, economics professor at George Mason University, advises employers to continue doing business as usual despite the ups and downs of the election season: “Stay the course. Ignore front page news,” he advises.
Sophia Koropeckyj, managing director, Moody Analytics, points out that the U.S. has one of the healthiest economies in the world, and is more likely to be affected by global forces.
“The economy is not doing as well as previous expansions, but it’s not a basket case,” says Koropeckyj. “If there is uncertainty, it would be less what’s going on in the presidential campaign than what’s happening in the world.”