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By Dr. Carl Steidtman, Chief Retail Analyst, Deloitte Research


It's the economy stupid!

--James Carville

Carville's axiom about elections and the economy has become a critical part of conventional wisdom. Incumbents have both an incentive and some ability to manipulate the economy to their advantage. In a good economy, the incumbent has the advantage. While that is true as a generalization, there have been many election cycles like 1968 and 1976 where a good economy was not enough to save the incumbent. Nor is a weak economy the kiss of death. In 1956, despite a weak economy, President Eisenhower easily managed to win reelection. George Bush, Sr. managed to hold the White House for the Republicans with sub-par consumer spending in 1988 as did Bill Clinton for the Democrats in 1996.
Despite these exceptions, it is hard to deny that there is a loose relationship between elections, the business cycle, and consumer spending. More importantly, the year after the election generally sees a slowdown in consumer spending, regardless of who wins. In the past 40 years, the only exceptions to this rule were Ronald Reagan in 1981 and Bill Clinton in 1993. In both cases, the economy was coming out of a recession from the previous year, a recession that in both cases helped the challenger to beat an incumbent president.
The slowdown in consumer spending is broad based. While durable goods are more directly impacted than nondurables, virtually all classifications of goods are affected in some way.
Among the nondurable categories, gasoline appears to be the most sensitive to the political cycle. Gasoline sales soar in presidential election years, only to fall off in the two years following the election.
Not surprisingly, food is the least susceptible to political cycle manipulation. Even with food, however, election years are the best of the four-year cycle. General merchandise also responds to the political cycle, rising 6.7 percent in presidential election years but growing slower in nonpresidential election years.
In general, the upshot for the economy is: Look for slower consumer spending growth next year. For retailers in general merchandise, food, and gasoline, the biggest slowdown ahead if historical trends hold will be for gasoline.