Presidential Elections and the Economy

How Much Does the Economy Influence Presidential Election Outcomes?

Presidential Seal on podium in front of The White House
Presidential Seal on podium in front of The White House. Getty Images/Joseph Sohm-Visions of America/Photodisc

It seems that during every presidential election year we are told 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. If the opposite holds true, however, the president should prepare for life on the rubber chicken circuit.

 

Testing Conventional Wisdom of Presidential Elections and The Economy

I decided to examine this conventional wisdom to see if it holds true and to see what it can tell us about the future presidential elections.

Since 1948, there have been nine presidential elections that have pitted an incumbent president against a challenger. Out of those nine, I chose to examine six elections. I decided to disregard two of those elections where the challenger was considered too extreme to be elected: Barry Goldwater in 1964 and George S. McGovern in 1972. Out of the remaining presidential elections, incumbents won four elections while challengers won three.

To see what impact jobs and the economy had on the election, 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 incumbent's presidency and how it performed relative to the previous administration. First, we'll look at the performance of "Jobs & The Economy" in the three of the cases in which the incumbent won.

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Out of our six chosen incumbent 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 Election: Eisenhower (57.4%) v. Stevenson (42.0%)

 Real GNP Growth (Economy)Unemployment Rate (Jobs)
Two Year4.54%4.25%
Four Year3.25%4.25%
Previous Administration4.95%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 Election: Reagan (58.8%) v. Mondale (40.6%)

 Real GNP Growth (Economy)Unemployment Rate (Jobs)
Two Year5.85%8.55%
Four Year3.07%8.58%
Previous Administration3.28%6.56%

Again, 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 Election: Clinton (49.2%) v. Dole (40.7%)

 Real GNP Growth (Economy)Unemployment Rate (Jobs)
Two Year3.10%5.99%
Four Year3.22%6.32%
Previous Administration2.14%5.60%

Clinton's re-election was not quite a landslide, and 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 not 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%) v. Challenger (41.1%)

 Real GNP Growth (Economy)Unemployment Rate (Jobs)
Two Year4.50%6.26%
Four Year3.18%6.39%
Previous Administration3.46%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.

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Now for the three incumbents who lost:

 

1976 Election: Ford (48.0%) v. Carter (50.1%)

 Real GNP Growth (Economy)Unemployment Rate (Jobs)
Two Year2.57%8.09%
Four Year2.60%6.69%
Previous Administration2.98%5.00%

This election is quite an unusual one to examine, as Gerald Ford replaced Richard Nixon after Nixon's resignation. In addition, 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 Election: Carter (41.0%) v. Reagan (50.7%)

 Real GNP Growth (Economy)Unemployment Rate (Jobs)
Two Year1.47%6.51%
Four Year3.28%6.56%
Previous Administration2.60%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 years of the Carter administration 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 Election: Bush (37.8%) v. Clinton (43.3%)

 Real GNP Growth (Economy)Unemployment Rate (Jobs)
Two Year1.58%6.22%
Four Year2.14%6.44%
Previous Administration3.78%7.80%

Another unusual election, as we are comparing the performance of a Republican president (Bush) to another Republican administration (Reagan's second term).

The strong performance of third party candidate Ross Perot caused Bill Clinton to win the election with only 43.3% of the popular vote, a level usually associated with the losing candidate. But 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%) v. Challenger (48.0%)

 Real GNP Growth (Economy)Unemployment Rate (Jobs)
Two Year1.87%6.97%
Four Year2.67%6.56%
Previous Administration3.12%6.50%

In the final section, we'll examine the performance of Real GNP growth and the unemployment rate under George W. Bush's administration, to see if economic factors helped or harmed Bush's reelection chances in 2004.

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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 first term as president. Using data up to and including the first three months of 2004, we will form our comparisons. First, the growth rate of real GNP:

 Real GNP GrowthUnemployment Rate
Clinton's 2nd Term4.20%4.40%
20010.5%4.76%
20022.2%5.78%
20033.1%6.00%
2004 (First Quarter)4.2%5.63%
First 37 Months Under Bush2.10%5.51%

We see that both real GNP growth and the unemployment rate were 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:

  1. Lower Economic Growth than the Previous Administration: This occurred in two cases where the incumbent won (Eisenhower, Reagan) and two cases where the incumbent lost (Ford, Bush)

     

  2. Economy Improved In the Last Two Years: This occurred in two of the cases where the incumbent won (Eisenhower, Reagan) and none of the cases where the incumbent lost.

     

  3. Higher Unemployment Rate than the Previous Administration: This occurred in two of the cases where the incumbent won (Reagan, Clinton) and one case where the incumbent lost (Ford).
  1. Higher Unemployment Rate in the Last Two Years: This occurred 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 W. Bush 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.

    Assuming that we are back in pre-election 2004, this data alone would have made it difficult to predict whether George W. Bush would end up in the "Incumbents Who Won" or the "Incumbents who Lost" column. Of course, Bush did end up winning reelection with just 50.7% of the vote to John Kerry's 48.3%. Ultimately, this exercise leads us to believe that conventional wisdom - particularly that surrounding presidential elections and the economy - is not the strongest predictor of election outcomes.