Post-election uncertainty is bad for the economy

Shoppers are likely to pause spending for a time until the US election outcome is decided.
Shoppers are likely to pause spending for a time until the US election outcome is decided.
Image: Reuters/Mike Blake
We may earn a commission from links on this page.

It could be some time before the result of the close contest for the US presidency becomes clear. Whether the incumbent president, Donald Trump, or his challenger, Joe Biden, wins, the US economy may be the immediate loser.

That’s because post-election uncertainty and lingering political division could put a damper on consumer spending.

“In the short term, while we’re waiting for a clear outcome from the election, consumer spending is going to hit a pause,” says Greg Portell, lead partner in the global consumer practice of Kearney, a strategy and management consulting firm.

Americans are anticipating a drawn-out dispute. Regardless who emerges as the apparent winner first, the opposing party looks ready to challenge the result. In that scenario, states will still need to certify their election results, which can take weeks in some cases, and then court battles might ensue. The longer the process carries on, according to Portell, the longer shoppers will probably wait in a state of semi-paralysis, especially if there’s also civil unrest that closes stores and raises safety concerns.

But even once a victor is declared, spending may not return to normal right away. There are those who might wait to see what the next president has planned before making big financial decisions. Beyond that, America’s deep political polarization may influence how consumers act.

In a paper published late last month, researchers used large-scale household surveys to examine how Americans expect the economy to fare based on their political affiliation and the election result. They found respondents held a dim view of what would happen if their candidate didn’t win, and that could very well translate into their behavior.

“Taken together, these results suggest that the upcoming election might trigger a wave of reluctance to consume after the Presidential election when the preferred candidate of many individuals does not win,” the researchers wrote. “This is likely to occur since many individuals of both parties over-estimate the probability of their candidate being elected and have very dire views of the economic outlook if the other candidate is elected.”

How consumers feel doesn’t always correlate exactly with how they spend. But Portell also believes the deep political divide in the US could have an effect if the battle over who becomes president next turns especially contentious. “Both sides view the other side as dangerous,” he says. “That creates risk in the consumer’s mind, which is even more troubling than just uncertainty.”

The timing is not ideal. After Covid-19 battered US retail sales earlier this year, they had begun to rebound in the past few months. A chaotic election threatens to derail that progress just as retailers head into the holiday season.

In the long run, Portell expects shoppers to get back to spending. Both parties have economic stimulus plans that should put some more cash in consumers’ pockets, though the gridlock in Washington probably means a skinnier plan will pass than what was originally imagined. In the meantime, Americans will be waiting to find out who their next president will be.