Economy and The Presidential Elections

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.

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.

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:

1. 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)
2. 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.
3. 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)
4. 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 Tradesports.com 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.