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Presidential elections and recessions can have a lot in common

A man begs for money on a stairwell in an entrance to the Port Authority Bus Terminal in New York City.
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A man begs for money on a stairwell in an entrance to the Port Authority Bus Terminal in New York City.

Eight of the last 11 recessions have coincided with the first year of a presidential term, and since 1920, recessions during a new president's first year have been three times as common as in other periods.

Citigroup, in a new report, also points out that there has been a tendency for Republican presidents to be elected close to business cycle peaks and Democrats more often come in when the economy is depressed and set to recover.

"With the exception of Reagan and Carter, we've tended to shift toward a Republican when our confidence is high," said Steven Wieting, Citi Private Bank chief global strategist. "We tend to shift to a Democrat when the economy is deeply depressed, as we did in 2009. Democrats have been able to ride out the business cycle recovery. Republicans, as you see from George W. Bush, inherited an economy that was above trend."

Wieting said he is not looking for a recession next year, and in his base case, he sees Democrat Hillary Clinton winning the White House and Republicans holding the House and possibly taking the Senate.

Current polling data suggests that the prospects for Donald Trump are low for an electoral college victory, said Wieting.

Citi puts the chances of both the House and Senate going to a Democrat majority at 10 to 20 percent. The probability of unified Republican government with Republican Donald Trump winning the White House, and the GOP taking a majority of 60 Senate seats, has a less than 10 percent chance.

"I would say first and foremost, I think markets are getting more comfortable with the idea there's no catastrophic shock from the American election and that divided government is likely to provide us with no massive policy breakthroughs," he said. There should be diminished risk of a big transition in policy, which basically means status quo.



The majority of the last 11 recessions since World War II have all overlapped with the first year of a presidential term but he said that was coincident, not causal. Wieting said sometimes the recession was already underway when presidents entered office. While he doesn't expect a recession, Wieting concedes they can creep up before economists see them.

The economy has been growing slowly this year, and while economists see a pickup this quarter, there have been a few negative economic surprises lately like the slower growth in jobs, reported last week. Economists had expected 30,000 more jobs than the 151,000 reported, but that is still a strong number.

Wieting said there is no clear message from the softer-than-expected August data, which also showed up in weaker ISM manufacturing and service-sector data in the last several days.

Recessions have occurred 3X as often in the first year of a new president as other years


"Recession during a new president's first year in office is more the rule than the exception. I think that in this particular case, the way the polling is going suggests to me diminished risk of a large economic transition," he said.

He said Trump would be seen as a negative for risk assets if he began to look like he was leading. Trump's tax proposals could result in less revenue generation for the U.S., and some of his policies would create uncertainty in markets around the world.

"Our message from this is that a sweep of control, a unified government, would be risk negative and increasingly it looks like divided government, checks and balances would be the outcome that makes us increasingly convinced the markets will continue the trend we've seen," he said.