Presidential Campaign Rancor Begins to Infect the Economy
The heated presidential election campaign may be starting to cast a chill over the U.S. economy.
Manufacturing companies this month reported the smallest improvement in business since 2009, with a growing number citing political uncertainty as a reason for the sluggishness. Pre-election jitters also are turning households more cautious, with consumer confidence as measured by the University of Michigan at its lowest level since September.
“The level of anxiety is rising,” said Nariman Behravesh, chief economist for consultants IHS Inc. “It’s become a small negative for the economy.”
Business executives are putting off some spending and investment decisions because it’s unclear what policies a new president will pursue and what effect those plans will have on corporate bottom lines.
The uncertainty is heightened because Republican Party front-runner Donald Trump supports such radical steps as slapping big tariffs on Chinese imports, while Democrat Hillary Clinton is backing away from some of the pro-business policies she advocated in the past, Behravesh said.
The murky political environment ahead of the November elections “looks like it might be causing some lull in activity,” said Chris Williamson, chief economist at Markit Economics, which polls company purchasing managers monthly.
Markit’s manufacturing index fell to a preliminary 50.8 in April, the lowest level since September 2009, from 51.5 in March.
In another sign of corporate caution, orders for business equipment were little changed last month after declining 2.7% in February, according to Commerce Department data released April 26.
The Federal Reserve is also picking up signs of increased business unease about political developments in its regular survey of economic conditions known as the Beige Book. There were eight mentions of the upcoming election and its effect on the economy in the three reports that the central bank has published so far this year.
That contrasts with the past two presidential election years. In 2012, there were only two mentions of the election in the first three surveys the Fed carried out that year. In 2008, there was none.
Consumers also are expressing more concern about the political campaign, said Richard Curtin, director of the University of Michigan’s monthly confidence survey. The university’s index of consumer sentiment fell to a preliminary 89.7 in April from 91 in March.
“A large number of consumers spontaneously mentioned the negative implications of the election or the government policies” in the early April survey, Curtin told Bloomberg clients in an April 15 conference call. The economic outlook index for those preoccupied with the upcoming vote was 39 points lower than for those who weren’t, he said.
Given the recent decline in confidence, he said he’s reduced his forecast for the growth of consumer spending this year, the biggest part of the economy, to about 2.5%, after a 3.1% gain in 2015.
“I have concerns going into an election year,” Michael Jackson, CEO of AutoNation Inc., said in an April 22 conference call with stock market analysts. “I’ve observed in the past when there’s a very controversial election, and it looks like we’re on the road to have one of those this year, that consumers sometimes hesitate around big purchases.
“Usually it picks up after the election, but leading up to election, it can be a little bit soft,” added Jackson, whose Fort Lauderdale, Florida-based company bills itself as America’s largest automotive retailer. “So I think the economy has had a hesitation or a rough patch. We’ll have to see if it resumes its stride.”
The United States began the year on a weak note with economic growth from January through March probably slowing to a 0.6 annualized rate from 1.4% in the last three months of 2015, according to the median forecast of economists surveyed by Bloomberg ahead of government figures Thursday. Any hesitation by consumers now would short circuit the economy’s ability to rebound like it did after similar slowdowns at the start of 2014 and 2015.
