Shoppers carry bags while crossing Post Street in San Francisco on Aug. 10. Photographer: David Paul Morris/Bloomberg
“We are nervous, I guess is the word, about what we think is going to be a noisy election cycle in North America,” chief executive Scott Thompson told investors recently.
That uncertainty could explain why several key readings of the economy’s health have been surprisingly weak lately, analysts say. Consumer spending was restrained last month, when many experts had expected a pickup. Companies have been reluctant to invest, dragging down broader economic growth. Even the strong job market has become suspect: Perhaps businesses would rather hire workers than spend big money on equipment and factories amid a fragile recovery.
A recent poll by the National Association for Business Economics found that 11 percent of its members have postponed hiring or investment decisions until after November. More than half of its members rated this year’s election a negative for the economy. The rest were unsure or neutral.
“Nobody said it was positive,” said Kevin Swift, who headed the survey committee for the National Association for Business Economics.
Every presidential election creates fresh uncertainty about the direction of the economy, an issue that consistently ranks among voters’ top concerns. Both Republican nominee Donald Trump and Democratic nominee Hillary Clinton have made frustration over the slow progress of the nation’s recovery from the Great Recession cornerstones of their campaigns.
But the stark differences in their approaches raise the potential for sweeping changes that could fundamentally alter the way the United States does business. Trump, in particular, has rejected economic orthodoxy by threatening to pull out of the country’s free trade deals, slap hefty tariffs on foreign goods and impose a ban on new regulations. Clinton has come out against a new trade deal in Asia but also proposed raising income taxes on the wealthy and new taxes on business.
For now, many companies are simply sitting tight. Business investment in factories, equipment and technology has fallen for three consecutive quarters, the longest streak of declines since 1979. Many analysts do not expect it to pick up until after the dust settles in November. In a survey of small businesses, the political climate ranked second to the economy as a reason to delay spending.
“Uncertainty is high, expectations for better business conditions are low, and future business investments look weak,” said Bill Dunkelberg, chief economist at the National Federation of Independent Business, which conducted the poll. “Our data indicates that there is little hope for a surge in the small business sector anytime soon.”
The lack of investment has restrained broader economic growth, which has averaged a meager 1 percent over the first half of the year. American consumers have been picking up much of the slack, powering the recovery by shopping online and buying cars. But there are signs that they, too, are growing weary of opening their wallets.
Analysts had expected retailers to post sales gains in July compared with the previous month, but government data released Friday showed they were flat instead. Among the sectors dragging down the results were grocers, clothing stores and bars and restaurants.
At Red Robin, profits have fallen by 32 percent and the stock price is down double-digits this year. Chief Executive Denny Marie Post cast about for answers on a recent conference call with investors: stagnant wages, more debt, or perhaps even politics.
“It does seem to us that the consumer has gone home and has pulled the blanket over their heads,” she said. “It’s really clear that the economic recovery has been far from even across the population.”
Isolating the election’s impact on the economy is difficult. It’s just one in a series of speed bumps that have threatened to throw the recovery off course since the start of the year. Rock-bottom oil prices, fears of a slowdown in China and Britain’s decision to leave the European Union have undercut the global economy and dampened momentum at home.
But economists say there is an underlying thread of uncertainty that ties those events together. Around the globe, populist movements are questioning the benefits of free trade and the costs of a go-it-alone attitude that might provide some shelter from the turmoil in the world economy.
“We are a world in transition with many who are justifiably looking for a change in course. Whether that move will take us to higher, safer ground or instead thrust us further into the path of the political storm is unknown,” said Diane Swonk, founder of DS Economics. “What we do know is that isolationism, protectionism and the politics of hate that tend to accompany these trends have historically diminished growth, triggering recessions or worse.”
Complicating the picture is the possibility that Congress will remain divided after the November elections, limiting the power of either candidate in the White House. Bold proposals for tax reform, Social Security and immigration could fall by the wayside once confronted with the realities of the political process. In a call with investors, casino magnate Steve Wynn expressed concern that the country’s $19 trillion debt would go unaddressed and skepticism that much would change.
“Everybody is making all kinds of promises and declarations that they can do things or they will do things that, of course, they cannot without exacerbating the problems that are currently plaguing the country,” he said. “We’re the chicken in the pot for every season where everybody is promising the moon.”
There are some businesses that stand to benefit from this year’s political drama, however. The E.W. Scripps Co., which owns 33 television stations, expects to make about 80 percent of its political ad revenue over the next three months. This campaign season has boosted sales to $8.4 million last quarter, four times the amount of political spending a year ago.
“As the electoral map has shifted and even constricted, one thing is clear,” chief executive Rich Boehne said recently. “If you want to be president of the United States, you will need to spend a lot of money in key Scripps states of Ohio, Florida and Nevada.”