The document discusses the economic implications of the U.S. elections in 2017, suggesting that historically, the occurrence of a recession linked to a president is unlikely unless significant monetary and fiscal tightening occurs. It notes that post-election economic conditions tend to mirror those before elections, and that consumer behavior, investment trends, and sector performances remain consistent with non-election years. Evidence indicates that past U.S. elections have not significantly influenced global economic growth or trade patterns.

1. Will the US election
trump the economy
in 2017?
Rupert Seggins, RBS Economics, July 2016
1

2. Information classification: Public/Internal/Confidential/Secret 2
Summary
While this time may be different, history suggests that the bar for a
President-caused US recession in 2017 is set much higher than may
commonly be thought.
• The main thing to watch for that would precipitate an immediate recession is
a significant and simultaneous monetary & fiscal tightening. This requires
more than just the President to accomplish.
• Other policy options either won’t cause a recession (e.g. increasing tariffs on
Chinese goods), are not very plausible (e.g. President causes a banking crisis)
or are just not going to happen(e.g. start a war, lose & get invaded).
• As far as the economy and financial markets are concerned, years following
US Presidential elections are not so different from other years.

3. Information classification: Public/Internal/Confidential/Secret 3
• Post election years look similar to
other years*, both in terms of
average growth and the frequency
of GDP falls.
• If the economy grows in the year
prior to an election, it normally
does the same in the following
year. A change of party makes no
difference to this pattern.
• There is one post-war in which a
growing economy in the year
before November turned to
recession – 1948. However, this was
not precipitated by policy.
US election years – not so different…
*Note: significance or otherwise of differences in frequencies of GDP falls established by chi-squared test at 5% significance level. Significance of average
growth difference by t-test at 5% level.

4. Information classification: Public/Internal/Confidential/Secret 4
• Household consumption follows
existing trends. There is no post-war
example of consumption peaking in an
election quarter.
• Investment is also little affected by
elections. The two post-war cases
where the election quarter was the
peak were 1948 and 2000 (the latter
coincided with the Dot-Com bust).
• No sector of the economy typically
does significantly* better or worse in a
post election year than in a normal
year. The apparently significant
difference for finance disappears if we
exclude 2008/9.
…and nothing significantly changes for any sector
*Note: significance or otherwise of average growth differences established by t-test at 5% significance level.

5. Information classification: Public/Internal/Confidential/Secret 5
• There is no typical path for exchange
rates or the stock market pre or post
elections. Averages are misleading.
• Post-WWII election months coincided
with stock market peaks in 1968 &
1972. In both cases, there was a sharp
rise in the Fed Funds rate.
• The dollar has fallen in the year after 5
out of the 13 elections since 1964.
Longer-term annual data (from 1792)
suggests a meaningfully higher post-
election frequency of dollar
appreciations vs. sterling (70% vs 50%
for other years). But this should be
interpreted with caution, as some
years may be due to sterling weakness.
Financial markets are as unpredictable as ever

6. Information classification: Public/Internal/Confidential/Secret 6
• Whether coincidence or otherwise, the
unemployment rate has taken a pause
in and around a third of all post-WWII
elections. Examples include 1964,
1984, 1996 & 2004).
• Real median family incomes fell during
some presidential terms that saw a
recession. For example, Reagan’s first
term (-0.2%) & Bush Sr.’s presidency (-
2.9%).
• But owing in part to globalisation and
technological change, recent income
falls have gone beyond single
presidents. They have fallen during
both Bush Jr. terms (-3%) and the six
years of Obama for which we have
data (-1.5%).
Unemployment pauses and longer term income
troubles

7. Information classification: Public/Internal/Confidential/Secret 7
• Across all G7 countries there is not a
significant difference between average
GDP growth in post-election and other
years.
• France’s economy has seen the most
GDP falls since 1871, but even there,
the frequency of annual economic
contractions is not significantly
different between post-election &
other years.
• Elections can and sometimes do lead
to high levels of uncertainty about
policy. Big monthly increases in
uncertainty have more often not been
election-related.
The experience of other G7 economies – guess what?
The same.
Note: significance or otherwise of differences in frequencies of GDP falls established by chi-squared test at 5% significance level. Significance of average growth
difference by t-test at 5% level. Data for uncertainty chart sourced from Baker, Bloom & Davis (2016), available at www.policyuncertainty.com

8. Information classification: Public/Internal/Confidential/Secret 8
House prices & stock markets across the G7
• House price downturns are
uncommon. The UK and Germany
are the only two G7 countries since
1975 that have seen rising prices
before the election turn to falling
prices just after (2010 for the UK
and 1983 & 2005 for Germany).
• As might be expected, Canada’s
stock market has typically had the
highest correlation with the US.
However, there is still no typical
difference between the years
before and after US elections and
other years.

9. Information classification: Public/Internal/Confidential/Secret 9
• Typically, the consumer is the backbone
of economic resilience. Post election
falls are uncommon (10 out of 84 post-
war elections) and reversals from
growth to decline rarer still (5 out of 84)
• Unsurprisingly, investment has been
more volatile with falls in advance of
around 1 in 3 elections and falls
following 1 in 4 elections.
• Manufacturing and construction output
are typically more volatile than service
sector output.
• All of the above is also the case in years
that are not post-election ones.
Election years - all eyes on the consumer

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• Given that US elections typically don’t
coincide with recessions, it is not
surprising that historically there is little
coincidence with a downturn in world
growth. However, this is not to say
that US recessions don’t influence
world economic growth (e.g. 1981/2 &
2008/9).
• There is also no significant* difference
for world trade, although here it is
more likely because things like US
tariff policy decisions have historically
taken time to debate and pass (e.g.
1828 Tariff of Abominations, McKinley
1890, Smoot-Hawley 1930).
Global economic & trade growth
*Note: significance or otherwise of differences in frequencies of falls established by chi-squared test at 5% significance level. Significance of average growth
difference by t-test at 5% level.

11. Information classification: Public/Internal/Confidential/Secret 11
• There is little evidence from US history
that raising tariff barriers has in and of
itself precipitated an immediate
economy-wide recession. There is
evidence that it creates winners and
losers within the country (e.g.
producers in different parts of the
country as in 1928). It also hinders
longer-term growth potential.
• Despite the oft-quoted Smoot-Hawley
tariff and subsequent response from
other nations, net trade contributed
little to the US Depression and
recovery. Employment and earnings
falls were no greater in agriculture and
manufacturing (where the tariffs
applied) than in other sectors.
Elections, protectionism & recessions

12. Information classification: Public/Internal/Confidential/Secret 12
Fiscal tightening (when accompanied by
monetary tightening).
• E.g. UK in 1980, US in 1937/8, Italy
2011/12. Usually done in response to
high inflation or debt sustainability
concerns.
• In extreme circumstances, this type of
policy action can precipitate a severe
recession where GDP falls by between
4%-9% (e.g. US in 1938 and Italy in 2012).
• UK in 2010 is an example where fiscal
tightening was sufficiently offset by
accommodative monetary policy such
that the economy did not fall into a
recession, despite a fall in consumption.
What policy decision involving a President would
precipitate an immediate recession?

13. Information classification: Public/Internal/Confidential/Secret 13
• The majority of very severe recessions
in G7 countries (4% to 9% fall in GDP)
have been linked to a financial crash of
some description.
• In order to cause a depression or
worse starting in 2017 (>9% fall in
GDP), G7 history suggests that the new
President would have to either:
i. Start a war with another country and
see the US invaded.
ii. Put the US on a fixed exchange rate
standard and immediately cause a
financial system crisis, while
continuing to defend that standard.
For the extremists among you…

14. Information classification: Public/Internal/Confidential/Secret 14
Some thoughts for 2017
• History suggests that the risk of an annual GDP fall in 2017 following the US
election is no higher or lower than in any non-post election year.
• History also suggests that economic conditions coming out of the election
will be similar to those going in.
• The main thing to watch for that would precipitate an immediate recession
is a significant and simultaneous monetary & fiscal tightening.
• Most other policy options are either not going to cause a recession, too
slow to act or are simply implausible.
While this time may be different, the bar for an immediate President-caused
US recession is set higher than may commonly be thought.

15. Information classification: Public/Internal/Confidential/Secret 15
@RBS_Economics
@Rupert_Seggins
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16. Information classification: Public/Internal/Confidential/Secret 16
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