What the 2016 Election Means for
The Economy, Entrepreneurship and Jobs
In peacetime, the economy is typically the most influential issue in an election. And even with terrorism very much in the news, most voters are likely to vet candidates based on what having them in Congress or the White House means for their own prospects as an investor, business owner, or worker.
Both the stock market and the job market have come a long way since the financial crisis. But a snapshot of the economy in 2016 still reveals several reasons for concern. Gross domestic product continues growing at a very low rate, and wage growth has stalled in most sectors. Whether voters select Hillary Clinton, a Democrat, to likely continue most of President Barack Obama’s policies, or choose Republican Donald Trump to overhaul them, the only certainty is that the winner will take steps to try to stimulate the economy.
Encouraging and Managing Growth
Danielle English, government affairs officer for Fifth Third Bank in Washington, D.C., says the Republicans are more likely to favor tax cuts to prime the economic pump. On the other hand, Democrats tend to favor increased government spending on job-creation strategies, such as programs to build and repair infrastructure. But she notes, any big new policy or program will rely on the president being aligned with both houses of Congress.
For most voters, the election’s effect on the economy starts with the labor market, which has steadily improved since the financial crisis. The good news is that the unemployment rate, after peaking at 10% in October 2009, has dropped below 5%. The bad news is that wage growth has been sluggish.
To address sagging wages, Clinton has proposed a national $12 minimum wage, which, if enacted, could adversely impact industries that rely on unskilled labor. Another area where federal policy affects wages and employment is immigration, which has proven to be a highly divisive and emotional issue in this year’s election. On that front, Trump has promised to curtail immigration from certain regions and to deport undocumented immigrants, while Clinton has promised reform with a path to citizenship within her first 100 days in office.
Perhaps surprisingly, international trade has also been a hot topic this election season, with both Clinton and Trump publicly opposing the Obama administration’s Trans Pacific Partnership (TPP) agreement. The TPP, and international trade agreements in general, now affect smaller businesses to a far greater extent than they had in the past, says Michael Donovan, a Fifth Third wealth management advisor in the greater Chicago area.
“For entrepreneurs, this is one of the biggest issues. And it creates uncertainty,” he says. That uncertainty has some companies holding off on signing agreements with overseas suppliers, or delaying plans to introduce their wares into new foreign markets until after the election is decided.
Regulation is another area where the presidential election strikes close to home for many business owners. And the parties offer starkly contrasting approaches on this issue. For most regulatory agencies, a Clinton administration is likely to continue in the same direction as the Obama administration, which sees regulation as playing an important role in protecting the American consumer, English says. Trump, on the other hand, has said repeatedly that the current regulatory environment is a serious obstacle to the economy, even going so far as to promise a temporary moratorium on new regulations should he be elected.
The Role of Uncertainty
With the two parties delivering such different visions, the main impact of the election on the economy is the uncertainty created by the election itself.
“Uncertainty tends to slow down business investment, which has already been one of the weakest components of U.S. growth,” adds Jeff Korzenik, Fifth Third’s chief investment strategist. And while the rhetoric of the two camps may encourage investors to imagine a number of worst-case scenarios as the election approaches, it’s important to maintain perspective, he says.
Melissa Register, a senior wealth planner for Fifth Third Private Bank in Cleveland, puts it this way: “In the moment, it may feel like we’ve never seen anything like this with this kind of uncertainty, but don’t let that feeling derail your plans.”
The uncertainty created by the election will soon pass, says Donovan. The clarity that comes when the election is decided, he says, could potentially lead to increased investment, and an improved economy.