Will US Presidential Elections Affect the Economy?

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The presidential election looms in the US next week. With the economy a crucial driving force amongst the voting public, how are results expected to influence the financial welfare of the country?

How big an effect could results make on America’s recovering economy? Image credit: Gary Mcinnes

America out of Recession

Last week, figures relating to the Gross Domestic Product (GDP) of the third quarter (Q3) of 2012 were released, providing evidence that, as suspected, the US can be viewed as being essentially out of recession.

Following an increase of 1.3% in the second quarter of the year, the report from the Bureau of Economic Analysis presented evidence that GDP had surpassed this figure and grown by 2% in Q3.

This is a general indication that spending in all areas (including goods, services, and property) is increasing, providing a lift to the economy as a whole.

In addition, the reports provide evidence that election spending has played a major part in boosting the recovering economy.

The Centre for Responsive Politics  recently estimated that the total cost of the current election campaigns will amount to $6 billion. $2.5billion of that alone will be spent in the battle between prospective presidents.

Presidential Election: Future Effects

Presidential campaigns may have already made an impact on US spending trends, but will the outcome of the elections themselves make a difference to the economy? Financial management company T. Rowe Price reports that financial markets tend to improve in election years, with 12 out of 16 election years producing improved investment opportunities in the form of the S&P 500 index rising.

The results themselves have, historically, been proven to produce significant after-effects. T. Rowe Price present figures that indicate a 9.2% rise in the S&P 500 index when the incumbent president wins the elections – a significant impact on financial trading and confidence in the future potential of large businesses. In the case of a new president being elected, the markets have grown, albeit at a reduced rate, which averages 2.2%. It is still a positive outcome for the financial world, but one which is clearly largely influenced by the outcome of the polls.

Election Year: Financial Impact on Individuals

Despite figures confirming that things in the US are improving financially, families and individuals may still yet feel they are yet to see the benefit of such advancements. Many fear the so-called “fiscal cliff” – the ending of certain tax credit schemes and other areas of government public spending  which is scheduled for January. With new or re-elected administration set to be in place before the year is out, experts predict that many of the cuts with be revised in the interest of preserving public confidence in both the leading political party and the economy in general.

For investors and working Americans, , the real effects of the presidential elections will only be seen once the winning party is established,  despite general reporting analyses already under the influence of the spending involved in political campaigns as they reach a crescendo.

Sources:

Bureau of Economic Analysis. National Income and Product Accounts Gross Domestic Product: Third Quarter 2012. (2012). Accessed October 31, 2012.

T. Rowe Price. The Stock Market in Presidential Election Years. (2012). Accessed October 31, 2012.

Fidelity. High-Net-Worth Investors Indicate Steps They Are Taking in Anticipation of Tax Increases Next Year. (2012). Accessed October 31, 2012.

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