There has been a lot of research into the effects elections have on the economy and how economic conditions can affect the results of elections. Depending on the analysis, different metrics have been used for economic performance, such as GDP, stock market returns, or other economic measures, and different elections have been examined, from presidential and congressional contests to ones for governorships and state legislatures. Given the recent election, it seems timely to build upon some of this analysis by examining what effect, if any, elections may have on machinery orders, as measured by the U.S. Manufacturing Technology Orders Report published by AMT.
Midterm elections, which occur halfway through a presidential term, are heavily swayed by the performance of the sitting president and often act as a gauge of public sentiment. Given the prominent role the president plays in the federal government, it would stand to reason that presidential elections have more of an economic impact than other elections. A U.S. Bank analysis indicated that in presidential election years, both stock and bond returns tended to be lower than their general return across any given 12-month period. They reasoned that the uncertainty caused by the potential for a new administration with new policy aims may lead investors to pause.
MT Orders in Election Years
In comparing this analysis to USMTO data, we found that orders tended to be higher in presidential election years than in any other given year. As we explored in a previous article, USMTO orders were significantly higher in IMTS years than non-IMTS years, and since U.S. elections occur every four years (on even-numbered years), they always fall on an IMTS year. The exception was 2020. However, with so many other factors at play that year due to the COVID-19 pandemic, drawing any meaningful conclusions may be impossible. Interestingly, when comparing the presidential election years to other IMTS years, orders tended to be higher in the presidential election years.
The U.S. Bank analysis further found that stock returns tended to be higher in years following the reelection of an incumbent president or when the same party retained the presidency. The story in the USMTO data is a little less clear. Orders dropped significantly below their average annual value following the 2000 and 2008 elections, when the presidency switched parties. However, these coincided with recessionary periods that likely impacted orders more than the elections. Orders in 2005, following the reelection of President George W. Bush, were also below average. Following the 2016 election, orders were up modestly, and orders grew significantly after the 2020 election; but due to the unique economic conditions of the time, it would be unfair to attribute the gains to the election.
Beltway Gridlock Slows Down MT
While the data does not send a very clear message about the impact of a presidential election on orders for manufacturing technology, the outcomes of congressional races does present an interesting trend. Similar to the presidential elections, congressional elections overlap with IMTS. To avoid any confounding affects, we aggregated orders by congressional term to get a time series of two-year periods. Looking at the party breakdown in the House and Senate, we observed that orders tended to be higher during terms when the party in control had a larger majority. This trend is logical, because regardless of the party in control, thinner majorities allow smaller factions of a party to derail legislation and force concessions from leadership. This could lead to increased uncertainty and delay capital investments until more stable times.
Examining the results of presidential and congressional elections on machinery orders produced some interesting preliminary results, and further examination will likely lead to additional insights. With one more midterm election in the books, it will be interesting to see if the previous trends hold. However, with the prospect of a recession on the horizon, as well as the need to control for several unique economic conditions, it may be some time before we can definitively attribute any effects on orders for manufacturing technology to this election or its results.
If you have any questions about this information, please contact Chris at cchidzik@AMTonline.org.