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Election Impact on Economic Forecasting

November 8, 2019

At ITR Economics, we often get asked if we’re going to revise our 2021 forecast based on the 2020 election. The answer? No. Tune in to this week's TrendsTalk to learn why.

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Transcript by Rev

Brian Beaulieu:


Hello, this is Brian Beaulieu, CEO, economist here a ITR Economics. We're here for TrendsTalk. It's November 2019, we're a year away from their presidential election and we're already obviously into what we call the silly season, the presidential election cycle process. So that's what we're going to be talking about here. For us at ITR and if you've known us long enough you know we try and be as politically agnostic as we can. We don't take sides, Democrats versus Republicans. For us it has nothing to do with the party. And in the November issue of the ITR Trends Report, our monthly report, you're going to see that I wrote a bit about a slide that's in there, a graph that's in there that shows GDP growth rate from 1976 all the way through to where we are today. And we identified when Democrats were elected and when Republican was elected to the Oval Office.

And if you can find a correlation between growth and party, you be sure to let me know because we can't find one. And that's why we've always maintained it's not the politics, it's the policy. And we'll talk about policies until we're blue in the face when it has to do with economics, when there's some reasonable material or meat to talk about. Some of it really is pretty banal. I mean there's a candidate running around out there that wants to send $1,000 a month to every adult in America as long as you're a citizen or a legal resident I guess. And the question has to be asked, "Well, why and how are you going to pay for that?" I mean those are legitimate economic things to to discuss and clearly that would be a budget busting type thing unless you're going to seriously change the tax code.

But even at that, I mean think about in 2018 we had a significant tax cut in corporate taxes and people thought it was going to be this ultimate game changer and the influence just is not that durable. And that's the thing. The cycle tends to be the cycle. You can have a significant event like the 2018 tax cut and it changes things for one, maybe two quarters. And as we find ourselves now with this economy, we're back into slowdown mode and capex is clearly on the downside of the cycle and manufacturing has slipped for the last couple of months, none of which was supposed to happen because of this magnificent policy. And that's our point. The forces at work are so significant that it's Pareto principle. I mean you look at the 20% that really matters and that saves you a whole lot of time because you don't even pay much attention to the 80% that is filling the airwaves out there.

People are already asking us, you know you're going to change your 2021 outlook based on who wins the election in November 2020. And we'll all tell you no. I mean the trends that will define 2021 are set and granted long before where you and I are going to go cast our votes in November 2020. And we're not even all that interested in who the president is. We're much more interested in who comprises Congress. And the president can propose a lot of things and executive orders certainly can flit around the edges of life, but significant tax law changes, significant spending bills are still going to have to go through Congress. We're much more interested in who's going to be in Congress and what's that going to look like. And people say, "Well, what if we get a group in there that wants to spend even more money?" And we will say, "Well they're going to be hard pressed to spend even more money than what we're seeing spent now. But okay, what if we do? Where's that money going to come from?"

You gotta have those sorts of details known or else is just talk and it has nothing to do with reality. We're not likely to change our forecast for 2021 based on who wins the election of 2020. We think constantly about, well could it change our 2022 outlook? We're forecasting the economy is going to slip into a recession in 2022 and they want to know, people want to know are we going to change that outlook based on the election? And the answer to that is no. I mean we think about an awful lot is what could really go right, what could really go wrong that would make us alter any of our extended year forecast. And I'm hard pressed to find out or to contemplate what could go so right that we will want to take 2022 off the table.

So don't fail to plan for '22 because you think it's going to hinge on what happens in November 2020. You're much better off planning on the softness of '22 and if it doesn't come to be, maybe it comes a quarter later, two quarters sooner. It doesn't really matter. As long as you planned for the cycle, your company is going to be better off because we're never telling you to fail to strive for profitability. We're just trying to find ways for you to be profitable and the different environments. And for '22 as we have talked about here before for TrendsTalk, it's about moving into new markets, finding new opportunities, looking for those industries that are not likely to feel much pain if any pain at all during a broad-based macroeconomic recession.

And doing any of those things is not going to hurt you at all. It's going to help you no matter who's president of the United States in '21 and in '22. Or who's driving Congress in '21, '22. You've got the power, you make it happen. It's really as simple as that. We've followed the trends and the trends are going to be there and you can be ahead of those trends and make more money accordingly. Thanks for listening. This has been Brian Beaulieu, ITR Economics, TrendsTalk, November 2019.

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Since 1948, we have provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US. With a knowledge base that spans six decades, we have an uncommon understanding of long-term economic trends as well as best practices ahead of changing market conditions. Our reputation is built on accurate, independent, and objective analysis.