The Election’s Effect on the Economy? Doughnut Sales Are Probably Safe

2016-10-31 21:52:13

 

The Election’s Effect on the Economy? Doughnut Sales Are Probably Safe

The coming election will give the United States new lawmakers and a new president. But what does it mean for fast food, leisure cruises and bulldozers?

As the nation’s bitter, bizarre campaign season builds to its November conclusion, companies across a range of industries are using the election as a data point — sometimes as an excuse — to explain what’s happening in their business.

Executives at Jack in the Box said uncertainty over the election could be affecting consumers’ willingness to buy Jumbo Jacks and cheeseburgers. Commercial real estate brokers said the election was causing businesses to hold off on new office leases. Auto dealers said the results could determine how many people buy cars.

From banking to oil to pharmaceutical companies, to real estate agents and even cruise ship operators, everyone seems to think wariness ahead of the election is affecting their business. Sometimes for the better, mostly for the worse.

Economists aren’t so sure.

“It’s essentially untrackable and unknowable,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

The problem with blaming unease over the election for disappointing business results is that there is faint evidence for it in the broader data. Businesses continue to hire at a decent clip, new home sales are steady and measures of consumer confidence are down but not by much. And on Monday, the Commerce Department reported that consumer spending was up 0.5 percent in September, a very healthy gain.

That is not to say that government policy doesn’t matter over the longer run — Hillary Clinton and Donald J. Trump are offering starkly contrasting prescriptions for improving the economy — just that worries about the outcome are probably not a big factor affecting coffee and doughnut sales these days.

In late October, Nigel Travis, chief executive of Dunkin’ Brands, cited several reasons that quarterly revenues at the company that runs the Dunkin’ Donuts chain fell short of analyst expectations, including “changes in gas prices, changes in food stamp regulations, and, of course, the overwhelming dampening effect of the presidential election.”

“I think we’ll all be pleased when that’s passed,” he said.

Various research papers suggest that elections and policy decisions can weigh heavily on businesses thinking. But for the most part, it seems limited to large-scale investment decisions that take years to show up in the data, and even then are hard to tease out from all the other things going on.

“We have disappointingly weak economic growth, a labor market that in some sense is strong but is still leaving people behind,” said Ed Leamer, director of the UCLA Anderson Forecast in Los Angeles. “People attribute what they see to one of several things that are displayed as being different: ‘It’s global warming. It’s uncertainty about the election.’ But I believe in evidence.”

Most of the evidence for election uncertainty comes from anecdotal accounts like corporate conference calls. The Federal Reserve’s most recent Beige Book report, a survey of regional economic conditions based largely on discussions with local business leaders, also makes several mentions of election uncertainty.

What they add up to is harder to say. Office brokers in New England said leasing was flat, possibly because businesses were waiting until after the election. But real estate brokers in the region cited “low interest rates and the impending presidential election as motivation for potential homeowners to buy now.”

The Fed report also said auto dealers in Houston, who have been hit hard by cuts in the oil industry, were pessimistic about the future and had “concerns about how the presidential election will impact consumer spending.”

For all the data economists have about how much consumers and businesses are spending, there is still an endless debate about why they are behaving the way they do. That is easier to gauge during boom times or a recession. It is harder during more normal times like these, when the economy is merely chugging along, with conflicting signs of optimism and pessimism almost anywhere you look.

And for all the differences between Republicans and Democrats, Washington’s effect on the vast American economy is far more muted than in many other countries, largely because the basic tenets of democratic capitalism are widely shared and the range of policy choices are constrained by popular opinion and the vast array of interest groups.

“If I were to tell you that the people running for president were Hugo Chavez and someone else, you might say it’s reasonable to start saving more,” said Tarek Alexander Hassan, an economics professor at the University of Chicago. “Once you start having to worry about the political system, it’s pretty much the only thing you have to worry about.”

Political choices matter in the United States, of course. It is just that the effect is smaller and harder to see than in, say, Venezuela.

Mr. Hassan and three other colleagues recently circulated a working paper in which they tried to figure this out. They measured how much time executives spent talking about political risk on corporate earnings calls, to see if the results could predict what their companies did later.

They found that the more executives talked about risks associated with politics, the more likely they were to cut back on hiring and investment and to ramp up their spending on lobbying.

That does not automatically mean politics is to blame. Some of those executives might be deflecting from company’s poor performance, using government policy as an excuse for cuts they were likely to make anyway. Some might be angling for a political handout.

Others might genuinely be worried about policy, regulation and taxes, but mostly because they are in an industry whose fortunes are more tied to federal spending.

During a third-quarter earnings call last week, Michael DeWalt, a vice president at Caterpillar, the heavy equipment maker, was cautiously optimistic that his company could benefit from an increase in infrastructure spending in the United States — something that both candidates have promised they would do.

And given that both Mrs. Clinton and Mr. Trump plan to make changes to the nation’s health care system — Mr. Trump has promised to repeal the Affordable Care Act — it is no wonder that John Lechleiter, chief executive of Eli Lilly, said he and other health care executives were expecting changes of some sort.

“It’s pretty clear, whether you say you want to repeal and replace the Affordable Care Act, something needs to be done if we’re going to render a health insurance availability for everybody in this country sustainable on an ongoing basis,” he said during an earnings call last week.

But once you add up all these crosscurrents, how much does it matter to the $17 trillion American economy? Mr. Hassan is researching that now. His hunch is that it matters somewhat, but not too much.

“In the last 20 years we’ve learned a lot about why some countries are rich and some countries are poor, and a huge determinant is the political system,” he said. “It’s not really a different concept in developed economies, it’s just a matter of degree.”

Kevin Hassett, an economist at the American Enterprise Institute, found something similar in a paper that also attempted to gauge the effect of government policy on spending decisions. Policy most certainly has an effect on businesses’ spending decisions, Mr. Hassett found, but it mostly shows up in large-scale investments whose contribution to the economy plays out over years.

“It’s big things like blast furnaces and buildings — things that have a really long life and aren’t easy to reverse,” he said. “Go ahead and buy the doughnut.”

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