How Election Years Impact the U.S. Economy

In 2020, consumer sentiment plummeted due to pandemic-related job loss and economic uncertainty.¹ While it’s improved since then, it has yet to return to pre-pandemic levels. The unease Americans feel about the future doesn’t just stop at the economy, either. According to a mental health poll released in May by the American Psychiatric Association, four in 10 Americans are more anxious than they were last year – and the 2024 election plays a significant role in the increase.²

The economy can also be sensitive to election cycles. This complex relationship is driven by factors such as policy uncertainty, market reactions, and government spending. Understanding this relationship will help you understand the potential impact on businesses and consumers like you.  

The economic impacts of the U.S. presidential election 

Policy uncertainty and spending

One of the most significant impacts of election years on the economy is the heightened level of policy uncertainty. Investors, businesses, and consumers are often unsure about future government policies, which can lead to market volatility. Financial markets tend to react to election-related news, with stock prices fluctuating based on the perceived chances of different candidates and their proposed policies.

These fluctuations are typically positive. From 1928 to 2016 there were 23 election years and 83% of them saw positive S&P 500 performance.³ The four years that saw negative performance coincided with economic events like the Great Depression, the start of World War II, and the 2008 housing market crash. 

Often, elections lead to changes in government spending and fiscal policies. Incumbent governments, which are those currently holding office, may increase spending on public projects and social programs to garner voter support. Conversely, the anticipation of new administrations can result in shifts in fiscal priorities, affecting various sectors of the economy.

Consumer sentiment

Consumer sentiment plays a crucial role in economic performance. While election cycles can be anxiety-inducing, the event itself doesn’t always correlate with lower consumer sentiment. Studies actually suggest party affiliation is what affects consumer sentiment and spending after an election.⁴ If your candidate loses, you may feel more pessimistic about the future and delay major purchases or increase savings. If they win, you may feel more optimistic about both personal and national economic conditions. 

Business investment and planning

Businesses also adjust their strategies in response to election-related uncertainties. Companies may postpone investment decisions, expansion plans, and hiring until there is more clarity about future policies and economic conditions.

While each election is unique, history reveals certain patterns, helping to predict potential outcomes. As we approach the 2024 election, remember that you can make a difference by voting. Go online to register to vote in your state: 

• Ohio
• Kentucky
• Indiana