BOULDER — Economists walk a tightrope during election seasons.
Striving to appear neither red nor blue during his presentation, Anthony Chan, managing director and senior economist with JPMorgan Fleming Asset Management, made sure to aim a couple of jokes at both parties as he discussed what impact the election might have on the economy, and vice versa.
“People have asked me, ‘When does the economy do better: when the person in the White House is a Democrat or a Republican?’” Chan said Thursday at a breakfast sponsored by Bank One.
The answer: It depends.
When a Democrat occupies the top spot, gross domestic product and the Standard & Poor’s 500 Index both show more growth, according to data from 1933 to the present that Chan has examined.
But, as Chan noted, some people will say it’s really Congress that makes the rules. When a single party is in control of both houses of Congress, real GDP shows more growth under Democrats, but the S&P 500 shows dramatically more growth when Republicans are in charge.
When the situation is as it is now, with one party controlling the White House and both houses of Congress, Republicans definitely deliver for stockholders.
Though GDP growth is fairly even under one-party rule, growth in the S&P 500 when the GOP is in complete control is nearly three times that when the Democrats are running the show.
For stockholders, Chan said, “You really make a lot more money if the Republicans are in control.”
One factor that could influence — and has historically influenced — presidential elections is unemployment. Looking back to 1940, Chan — who has a doctorate in economics from the University of Maryland — examined how job creation has been a predictor of election outcomes in the past.
Two methods are used to track employment numbers, Chan said: the establishment survey and the household survey.
“If you create 1.9 million jobs the year of a presidential election, the incumbent wins,” he said, adding that to date this year, 1.4 million jobs have been created.
That would appear to be good news for President Bush, but Chan noted that historically, that model — using data from the establishment survey — has proven right only about 60 percent of the time.
Based on the household survey, which has an 85 percent historical accuracy rate, 2.2 million jobs need to be added this year for the incumbent to keep his seat — a figure that could be good news for challenger John Kerry.
The household survey is a poll of workers; the establishment survey is a poll of business owners.
Chan predicts overall economic growth this year of about 4 percent. That’s above last year’s GDP growth rate of 3.1 percent, and a continuation of the recovery that began in 2002.
Chan pointed out that since 1933, the first year of a presidential cycle shows average GDP growth of about 3.5 percent. The second year shows growth of less than 3 percent, the third year more than 4 percent and the fourth about 5 percent.
“The economy miraculously does better during the fourth year of a presidential cycle,” Chan said. “I don’t know why that is — maybe people are trying to get elected or something.”
Social Security, health-care costs, energy prices, interest rates, inflation — all factor into the state of the economy. Overall, Chan was optimistic about where things are headed.
He doesn’t expect growth in the stock market this year to equal the double-digit growth of last year, but that’s fairly typical, he said.
“My study of the stock market is that the market does best during the third year of a presidential cycle,” he said. Last year’s S&P 500 growth of more than 16 percent will be replaced by a more modest 8 percent this year, Chan predicts.
Bryan Pieper, an investment specialist with Bank One’s Boulder office, said Chan’s presentation echoed what he’s been hearing from his clients.
“We always ask anecdotally, ‘What are you hearing in your business?’” Pieper said. “Guarded optimism — the cautious optimism is a comment we’re hearing a lot of.”
Tony Kindelspire can be reached at 303-776-2244, Ext. 291, or by e-mail at