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Past performance does not guarantee future results, but there’s a lot we can learn about the year ahead by looking at previous election cycles.
November home sales slow more than normal in an election year. Our aforementioned research highlighted that new home sales slow more from October to November in an election year compared to the other three years of the cycle. As noted, the slowdown has been historically concentrated in November and made up in the following months.
Election years do better than the year prior. Looking at all twelve months, home sales grow low single-digits compared to the year before.
The housing market is blessed with great demographic tailwinds and low interest rates. In fact, preliminary responses from our annual Millennial survey show that a fourth of our respondents plan on buying a home in the next 1-3 years. However, we need to keep an eye on affordability, which continues to be a top concern for today’s housing market. Furthermore, consumers are more skittish than normal and home shoppers could halt their search if the media’s take on the economy or housing market turns negative.
An uptick in spending corresponds with an election year. Both consumer and business spending historically increase in an election year (see graph below). This was a surprising finding to us but could be related to the positive messaging on the economy from the presidential nominees or actual pro-growth policies from incumbents trying to get re-elected.
The spread between consumer and CEO confidence is currently at a cycle-high. The job market is the main contributor to consumer optimism as people recognize that they have jobs, raises are more common than in the past, and job openings are close to an all-time high. We believe today’s consumer is still in a good place.
Business leaders, on the other hand, are anxious about future growth, which has resulted in a pullback in spending. We think it’s unlikely that business spending will take off similar to the historical uptick in an election year because threats to growth from a business owner’s perspective persist (fears of a recession, trade war, labor constraints, etc). We do, however, think a slight rebound in business spending is possible thanks to the phase one trade deal signed in mid-January.
There’s a negligible difference in job growth throughout the four-year election cycle. The only clear trend in the data historically is that the year before an election year has been the slowest.
We believe economic growth will continue on its current trend of growing but slowing. The tight labor market will constrain additional growth, which is to be expected with an unemployment rate at a 50-year low.
History shows that the incumbent is likely to win four more years if economic growth stays positive. As mentioned, to the extent possible, the current administration will try to roll out pro-growth policies and remove uncertainty to boost growth to help secure re-election.
Even still, we believe uncertainty will remain throughout this year and no part of the economy likes that. The question is- have we come to consider uncertainty par for the course?