TIME Economy

Euro Falls to a 9-Year Low on Greek Fears

Euro Money Greece
Getty Images

The euro fell to its lowest level against the dollar in nine years Monday, driven by fears of political turmoil in Greece and hopes for more monetary stimulus from the European Central Bank.

By lunchtime in Europe, the single currency had fallen to $1.1914 and has now fallen over 2c against the dollar since the start of the year.

It had already lurched lower on Friday, the first trading session of 2015, on the back of comments by ECB President Mario Draghi in an interview with a German newspaper saying that the risks of it undershooting its inflation target had increased. That added to speculation that the ECB will announce a bigger program of bond-buying, or so-called quantitative easing, at its first policy meeting of the year on Jan. 22.

The ECB is keen to play up that fact that its policy is getting easier even as the Federal Reserve prepares to tighten monetary policy in the U.S.. That outlook will keep the euro cheap on foreign exchange markets, helping the area to boost growth through the export channel.

Hopes for QE, coupled with pessimism over the Eurozone’s growth outlook, have already driven bond yields to unprecedented lows. Yields on German bonds are negative all the way out to 2019, while even Italy’s 10-year bonds yield only 1.79%.

The other factor weighing on the euro is the fear that the radical left-wing Syriza party will win Greece’s parliamentary elections at the end of January, starting a process that may lead to Greece leaving the Eurozone. The German magazine Der Spiegel reported at the weekend that Chancellor Angela Merkel was confident that the Eurozone could cope with a Greek exit.

That confidence is far from being universally shared by financial markets. Marc Ostwald, a strategist with ADM ISI in London, called a Greek exit “the ultimate example bar none of why the Euro project is doomed to failure if no progress on moving to some form of fiscal transfer union is made.”

The euro’s decline is only side of a general rally in the dollar. The dollar index, which measures the greenback’s strength against a basked of major world currencies (although, importantly, not China’s), is also at a nine-year high, after rising over 12% last year.

This article originally appeared on Fortune.com

TIME Economy

Minimum-Wage Increases Go Into Effect Across the Country

The wage hikes in several states and D.C. are expected to affect 3.1 million people

Roughly 3.1 million workers across the United States woke up to a little New Year’s Day present on Thursday, January 1, when increases in the minimum wage took effect in 20 states and the District of Columbia.

The recent bumps brought the total number of states with a minimum wage above the federal wage floor to 29, the New York Times reports. The federal minimum wage is $7.25 an hour.

Some of the increases are relatively tiny—a few cents—while some, of a dollar or more, could have a more significant impact on the economy. Minimum wage hikes in more states are set to take effect later in the year, according to the NYT.

The minimum wage hike is expected to impact 3.1 million of the 3.3 million Americans who earn the minimum wage.

[NYT]

MONEY Economy

Economy Delivers a Last-Minute Gift to Wall Street

141223_INV_Party_1
Getty Images/Purestock

The U.S. economy isn't exactly partying like 1999, but it came pretty close in the third quarter, growing faster than it has since 2003.

It’s time to stop describing this economic recovery as being “tepid.”

A new report from the Commerce Department Tuesday morning revealed that the U.S. economy had grown at an annual rate of 5% in the third quarter. Not only does that represents a major jump from earlier estimates of 3.9% growth, it marks the economy’s best performance in 11 years. And it’s the second straight quarter in which U.S. gross domestic product grew at or near the historically high mark of 5%.

Wall Street reacted as you’d expect, pushing the Dow Jones industrial average up another 60 points in early morning trading Tuesday to above the 18,000 mark. In just the past week, the so-called Santa Claus rally has now lifted the benchmark Dow up nearly 1000 points.

Most of that rally, however, centered on the bad news surrounding the global economy, as the slowdown overseas is putting a lid on inflation and allowing the Federal Reserve to keep interest rates near zero for some time.

Today’s bump, though, was all about the surprising health of the U.S. economy in general and American consumers in particular.

Earlier reports showed that consumer spending, which represents more than two thirds of total economic activity in the country, had grown a decent 2.2%. But today’s new report updated that figure to 3.2%. “The boost to personal consumption was much stronger than we had expected,” noted Michael Gapen, chief U.S. economist for Barclays Research.

This would imply that the improved job market and rising net worth due to improvements in the stock and housing markets are finally being felt by American households—just in time for the holidays.

TIME Economy

U.S. Economy Notches its Best Performance in Over a Decade

Dow Rises Over 400 Points Day After Fed Signals No Rise In Interest Rates
Traders work on the floor of the New York Stock Exchange in Nwe York City on Dec. 18, 2014. Andrew Burton—Getty Images

The improved reading was a result of an increase in personal consumption

The U.S. economy’s third-quarter performance is the strongest the nation has recorded in more than 10 years, as consumers continue to spend more as they feel emboldened by a stronger job market, a stronger housing market and rising stocks.

Gross domestic product for the third-quarter leapt a better-than-expected 5% according to the Commerce Department’s “third” estimate. That growth exceeded the prior quarter’s 4.6% increase. It also was the greatest advance since the third quarter of 2003, according to Bloomberg.

Economists had projected a 4.3% jump in GDP for the latest reading of the economy, according to a poll conducted by Bloomberg. And no economist polled by Bloomberg had expected a revision as high as the Commerce Department reported: the consensus range was between 4% to 4.5%.

The improved reading was a result of an increase in personal consumption that was more than the Commerce Department had initially reported, as well as greater federal, state and local government spending, an increase in exports and residential fixed investment. Imports, however, decreased.

There had been some indications the economy was performing well even before the Commerce Department report. Retail sales leapt a better-than-expected 0.7% in November, the strongest growth the Commerce Department has reported since March of this year. Fortune earlier this week reported that U.S. shoppers spent a record $42 billion on Saturday and Sunday, the final weekend before Christmas and signaling Americans are perhaps more willing to open up their wallets as they enjoy savings from lower prices at the pump and feel emboldened by a stronger stock market and improves in housing and employment.

This article originally appeared on Fortune.com

MONEY Economy

Dow Races Past 18,000

141222_INV_Humbug
Jeffrey Coolidge—Getty Images

But is this "Santa Claus" rally in the stock market being driven by an economy that's naughty or nice?

The Dow Jones industrial average climbed above the 18,000 level for the first time ever, shortly after the government released a report showing the U.S. economy grew at an annual rate of 5% in the third quarter—much faster than was initially thought.

The report also pointed out that consumer spending increased faster than expected, a sign that the improving labor, stock, and housing markets are finally being felt by American households.

Given this fact, conventional wisdom says the market is enjoying a normal Santa Claus rally. But conventional wisdom is wrong. Here’s why:

At the end of most years, stocks tend to surge for reasons of good tidings and good cheer. This year, however, the bulk of the near 1,000-point rise in the Dow that began a week ago has really been driven by bad news around the world.

As economies in Europe, Asia, and Latin America have all slowed more than expected, expectations for global growth have sunk, driving down oil and commodity prices. In fact, crude oil prices have tumbled by nearly half, to around $61 a barrel since the summer.

Brent Crude Oil Spot Price Chart

Brent Crude Oil Spot Price data by YCharts

For American consumers, this is an early present from the North Pole. The average price of regular-grade gas in the U.S. has fallen to $2.47 a gallon, the lowest point since 2009, which leaves more money to stuff into Christmas stockings at this time of the year.

Yet for large parts of the rest of the world, falling oil prices and the slowing economy spell trouble.

Falling energy prices, for instance, are wreaking havoc on the budgets of emerging economies that are dependent on oil revenues to maintain their finances. Russia, Algeria, Iraq, Iran, Nigeria, and Libya all require oil prices above $100 a barrel to keep their debt/gross domestic product ratio from rising, according to a recent report from Goldman Sachs.

Even Middle Eastern oil producers such as Kuwait, the United Arab Emirates, Qatar, and the Saudis need oil above $63 a barrel to maintain their financial health, yet oil is barely over $60 a barrel now.

As global economies start to sputter, investor faith has faltered, as seen by the flight of cash away from global currencies into the U.S. dollar. In recent months, the value of the dollar has jumped nearly 13%, which strengthens the buying power of Americans but hurts the finances of most of the rest of the world.

^DXY Chart

^DXY data by YCharts

To keep their currencies from losing even more value, central banks around the world are now in the unenviable position of having to raise interest rates even as their economies crave rate cuts to boost growth.

The U.S. Federal Reserve is the one big exception.

While Fed chair Janet Yellen has denied that global economic worries are influencing the Fed’s decisions on setting U.S. interest rate policy, the consensus on Wall Street is that they clearly are a factor.

Last week, just before the Santa Claus rally ignited, the Fed’s Federal Open Market Committee (FOMC) announced — as expected — that it would keep short-term rates near zero. The committee, however, threw Wall Street a curve ball when explaining its decision. For months, the Fed said that it expected that rates could stay near zero for “a considerable time.” Investors were bracing for that language to be removed from its December press release since the U.S. economy was starting to get into gear.

As it turned out, “the phrase ‘considerable time’ was not dropped from the latest FOMC statement as was widely expected. Instead, it was reinforced with a new phrase stressing that the Fed can afford to be ‘patient’ before starting to raise interest rates,” said Ed Yardeni, president of Yardeni Research.

In so doing, “the Fed didn’t remove the punch bowl; they spiked the punch,” says Sam Stovall, U.S. equity strategist for S&P Capital IQ. “Akin to lighting the tree at Rockefeller Center, this response to the Fed’s actions may have signaled the start of the Santa Claus rally.”

Why did the Fed cling to this “patient” sentiment?

Because the global slowdown allowed it to.

The U.S. economy is clearly gaining momentum, as Tuesday morning’s GDP report clearly showed. But cheap oil caused in part by a global slowdown means that consumer prices in the U.S. should be stable. That means even as GDP is rising at a brisk pace, the Fed can keep stimulating the economy with low interest rates without fear of inflation.

In other words, what’s bad for the world is good for the U.S.

Merry Christmas.

TIME Economy

Here’s the Big Problem With America’s Economic Recovery

Janet Yellen
Federal Reserve Bank Board Chairman Janet Yellen Chip Somodevilla—Getty Images

Yes, the U.S. is roaring back—especially compared to competitors—but that doesn't mean we're out of the woods yet exactly

If you could write one headline to encompass the past six years of economic history, it would probably be “U.S. Leadership Is Over.” The financial crisis, the Great Recession and the tepid recovery that followed seemed to mark a permanent decline in American market hegemony. But the past few months of economic data are calling all that into question: U.S. gross domestic product and jobs growth are the strongest they’ve been since the crisis. CEO surveys are predicting a new era of business spending. And the effect of the dramatic fall in oil prices since last summer will likely mean the equivalent of a $100 billion tax cut for U.S. consumers.

For an economy made up 70% of consumer spending, that could mean the beginning of that virtuous, job-creating consumption cycle that we’ve been awaiting since things went to hell in 2008. What’s more, with trouble in developing markets like Russia, India and Brazil as well as most of Europe, the U.S. is suddenly no longer the epicenter of market trouble but rather the best hope for global prosperity. The question everyone is asking now is, Can the U.S. lead the world again?—-economically, at least.

Times have changed since the U.S. last found itself in a similar position. Then, back in the late 1990s, when the Asian debt crisis had everyone predicting the end of a great run of global growth, the worst-case scenario never came to pass. Even as China and the other big Asian markets tanked, U.S. growth powered along at nearly 4%, helping the rest of the world maintain a respectable 2.5% average.

But now China represents four times as much of the world’s growth as it used to, having swapped places with Europe in terms of importance. The debt crisis and major economic slowdown happening in the world’s most populous nation are big reasons that oil prices have fallen—Chinese businesses and consumers are using much less energy these days. That creates a contagion effect in countries like Brazil, Nigeria and Russia and in parts of the Middle East, which have economies that are increasingly driven by China. No wonder experts like Morgan Stanley’s Ruchir Sharma are proclaiming that the next global recession will be “made in China.”

What does all that mean economically for the U.S.? While the fall in oil prices is great short-term news for middle- and low-income Americans—who are already buying more gas, cars and big-ticket appliances as a result—it also makes it tougher for American energy producers to pump out of the ground all that homemade shale oil and gas we’ve been hearing about for the past several years.

Unlike the Saudis, who can practically dig with a teaspoon and hit oil, we have to frack for it, and that’s expensive. Saudis need about $25 a barrel to make money on oil. We need at least $70, and most of the energy development and production happening in the U.S. now was set up at a time when prices were over $100. Currently they are hovering around $60, thanks not only to a sluggish China but also to the unwillingness of Saudi Arabia to cut production in order to boost prices (which may be part of a complex geopolitical strategy by the Saudis to put pressure on rival petro-autocrats in Iran, as well as Putin’s Russia).

All of this matters, and not just because energy is the de facto scoreboard for the global economy these days. If U.S. energy producers decide that they can’t afford to stay in the game with prices so low, that could hurt American manufacturers who were basing their expansion plans on cheap power. They might cut jobs, which cuts consumer spending, which cuts jobs … head-spinning, I know. The bottom line is that the evolution of the global economy over the past couple of decades blunts the ability of the U.S. to carry the rest of the world economically in the years ahead.

While it’s an amazing thing that the U.S. is likely to outgrow many emerging markets this year, the crucial question will be how robust the U.S. recovery will remain in the face of the global slowdown. At the risk of being a Cassandra, I’d feel better if I thought the U.S. recovery had been built on a firmer foundation, like a strong housing recovery or a real pickup in wages. Neither is the case. Rather, this recovery is genetically modified—it was engineered by the Fed’s $4 trillion money dump and interest rates that are still near zero. As they begin to rise—as they almost certainly will toward the middle to end of 2015—the monetary scientists in Washington will step back from the petri dish and see if the economy can sustain what they kick-started. Only then will we be able to gauge whether the U.S. has regained its position as the driver of the global economy.

TIME Jobs

Americans’ Confidence in Job Market Hits Highest Since Recession

36% of Americans say that now is the right time to find a good quality job—up from 30% in November

Americans today are as hopeful about finding a good job as they were before the recession, according to a new survey.

In December, 36% of Americans said they felt now is the right time to find a good quality job—up from 30% last month, a new Gallup poll reports. The last time Americans’ job outlook stood at this level was back in November 2007, when 38% of Americans were confident they could find a good job.

Americans’ job quality outlook has generally remained low throughout the recession, dipping to as low as 8% several times since 2009. The marked change in respondents’ outlook in the recent poll seems to indicate an overall increase in confidence in the U.S. job market, which has improved over the past year.

So far in 2014, the U.S. added over 2 million jobs, the most since the 1990s. In October and November, U.S. employment remained under 6%.

The Gallup poll results are based on a survey of 805 adults. It has a margin of error of plus or minus 4 percentage points.

TIME ebola

Ebola-Stricken Families to Receive Cash Payments

Hawa Musa with her mother and children. Of 25 people living in the house, 17 have died from ebola, including her husband.
Hawa Musa (blue) with her mother and children. Musa used to rent rooms for income, but no one wants to rent her rooms anymore. She previously had 25 people living in her house, but 17 died of Ebola including her husband and a few of her children. She's taken in 10 more kids. Carly Learson—Carly Learson / UNDP

In 2015, the three Ebola-affected countries will start offering cash payments for families hit by Ebola, as well as survivors having trouble re-acclimating to society out of stigma for the disease.

Every aspect of Guinea, Liberia and Sierra Leone’s societies have taken a hit from Ebola, and the disease has shocked what were once fragile but growing economies. Public spaces are now forbidden, so markets are empty, tourists are no longer traveling into the countries and international companies have largely pulled out, including large industries like mining. The World Bank estimates the aftershock of Ebola to already weakened economies will be “devastating.”

“We are seeing a backwards slide of development of about 10 years,” says Boaz Paldi, chief of media and advocacy at the United Nations Development Programme (UNDP). “The outlook is not good. We are fearful for these countries.” That’s why instead of waiting for caseloads to reach manageable numbers, the three countries, with the help of UNDP and other partners, are laying the groundwork now for rebuilding the damaged economies. One of the first major initiatives to be rolled out in the new year are cash transfers and payments to families who no longer have breadwinners and survivors out of work. Many women in the Ebola-affected countries have taken in orphaned children of their family members or neighbors, despite having no steady income.

Dudu Kromah's husband died recently from ebola. She is looking after ten children, many of them orphans including a 3-month-old baby.
Dudu Kromah’s husband died from Ebola. She is looking after ten children, many of them orphans including a 3-month-old baby. She has no income. Carly Learson—Carly Learson / UNDP

According to UNDP leaders, plans for the payment process are still being refined. Lists of names of affected families and survivors are being collected and coordinated for small pilot programs, starting early next year, to test the effectiveness of the payments in preparation for widespread efforts. UNDP has calculated that around $50 will keep a family of five going in the three countries with essential needs for one month, with some variations by country. The group is anticipating making monthly payments to 150-200,000 people in each of the countries.

Ultimately, the payment program may develop into a cash-for-work model, with payments in exchange for work rebuilding communities in an effort to inject cash into the local economy and enable people to earn a living.

Ideas for how to get youth involved are also being considered. In Sierra Leone, Ruby Sandhu-Rojon, the deputy director of the UNDP Regional Bureau for Africa, spoke to young people concerned that since residents can no longer go to their local markets, they are unable to buy the food they need. “So why not start a delivery company to have food delivered to the different communities? How can we provide the start-up capital for young people who want to initiative those types of activities?” says Sandhu-Rojon.

The three countries and the U.N., which launched the U.N. Mission for Ebola Emergency Response (UNMEER) earlier this year, are also looking to the private sector. On Dec. 11 the U.N. held a U.N.-Business Collaboration for Global Ebola Response meeting as a way to get the private sector involved in both the response and recovery. A panel of high-level representatives from U.N. Missions in the affected countries, the U.S., U.K., and France put out a call for help from companies in areas major like logistics. Ultimately, the greatest plea was for companies to return to the countries and invest.

Sadly, all three countries were experiencing high growth rates before the start of Ebola, after coming out of conflicts like civil war. Sierra Leone had only recently launched its “Agenda for Prosperity,” a high-level initiative to become a middle-income country by 2035. High growth rates could largely be attributed to extractive industries like mining, which have now largely decreased their production or shut down, causing a government shortfall in revenue and massive loss of employment. Remaining national resources have been reallocated to the Ebola fight.

“It’s very disheartening, because all three of these countries were on their way up,” says Sandhu-Rojon.

The hope is cash payments will be a boost to help people get by. But increasingly more support and funding will be needed from the international community and private sector to get the countries back on their feet. Whether the countries will make it back to pre-Ebola growth may be a much greater, and longer battle.

TIME Humor

Tips for Surviving the Holiday Season on a Shoestring Budget

Karen E. Bender is the author of Like Normal People and A Town of Empty Rooms.

Some socially acceptable dos and don'ts for a season of giving

It’s the holiday season. The economy has rebounded! Gas is ridiculously cheap! Everyone in the nation is supposed to be doing better. Well, we’re not. Somehow, this new, hopeful economy has bypassed us. We can’t figure out why.

Actually we’re fine. We’re okay, kind of. Which means that we are on the perilous life raft of the American economy; we are okay if nothing at all goes wrong. And while I love the holiday season, it is, sometimes, an economic minefield. But while the Federal Reserve dallies with interest rates, my economic salve for the money stress of the holiday season is one thing: pumpkin bread. (See “Do #6″ below.) Here are some ways to get through the holidays on a shoestring:

DON’T:

  1. Don’t go into any store that features shopping bags that can stand on their own accord, in the middle of a table. This sort of shopping bag denotes prices that will start chipping into your children’s college education fund. Avoid it. Remind yourself to put money into your children’s education fund. And oh yes, your retirement–next year, when things are better. I hear the economy’s improving.
  2. Don’t bid on anything at the religious institution’s Silent Auction. Walk by coveted items, smile at them, nod thoughtfully, but walk on. Or do bid but only when people are watching, and make it so small you can be outbid in an instant.
  3. Don’t monitor your online savings account in real time. It is tempting, but don’t do it.
  4. Don’t buy holiday cards to send out to people (the costs of stamps, my god!) Instead, post nice photo of family with loving caption on Facebook and see “likes” build.
  5. Don’t assume that a restaurant is good if it uses the words “Seatings are at” in its description. The word “banquet” will also do unmentionable things to your bill. You don’t have to pretend to be Henry the VIII, and you actually may not want to be.
  6. Don’t feel that your (or dear relative’s or friend’s) cat or dog will be insulted if you don’t buy him or her the crazily priced cat toy or sweater. Trust me: the pet will not know. This tip also applies to babies.
  7. Don’t assume that you have to wear a new fancy dress or shirt or anything to a New Year’s Eve party. No one is going to notice. Wear last year’s. Everyone’s going to be focused on the champagne and the mini-quiches. Helpful note: properly wrapped, mini-quiches can fit neatly into a purse. They heat up nicely later. By the way, I hear the economy is improving.
  8. Don’t feel that when relative sends gift card for X amount, you are required to send X amount back. Gift cards should not be an economic hostage situation. Send what you can and/or send pumpkin bread. (See #6 below)
  9. Don’t forget to buy books as gifts, as they will nourish the soul, far beyond the cover price.
  10. Don’t forget to give something (money or time) to causes, because you should.

DO:

  1. Tell your children that their Secret Santa gifts for their friends in class will be a re-gifting extravaganza.
  2. Tell your mother that any clothes she wants to purchase you as a gift has to be suitable for a job interview.
  3. Tell the children that the word “upgrade” has been banned in the household and nearby vicinity for the time being.
  4. Buy present at thrift store and sneakily give it to friend in fancy shopping bag received from other friend who foolishly went into store that used such shopping bags.
  5. Make pumpkin bread as the default gift for everyone. It is cheap, it is beloved, it is carbs. And you can make a batch sufficient for many gift recipients in an hour. Don’t worry about fancy cellophane wrapping, though bows are fine. You can use gluten-free flour if needed, too.
  6. Do remember that the dollar store is only a dollar store if you buy only one thing.
  7. Do remember that if it’s to grandmother’s house we go, that’s a good thing and grandmother can pay.
  8. Try to laugh, because not everyone can. And, by the way, it is free. And above all, know that after January 1, everything goes on sale. And did you hear? The economy is improving.

Karen E. Bender is the author of Like Normal People and A Town of Empty Rooms. Her fiction has appeared in The New Yorker, Granta, Zoetrope, Ploughshares, and others. Her debut collection of short fiction, Refund: Stories, will be published by Counterpoint Press in January 2015.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

TIME Economy

Just How Much Does the Economy Affect the Outcome of Presidential Elections?

Obama
Barack Obama speaks during a rally in Cedar Rapids, Iowa, on Jan. 2, 2008. Mauricio Rubio—Getty Images

It’s time for the media to stop pretending that candidates’ personalities, rhetoric and strategies are what really count

History News Network

This post is in partnership with the History News Network, the website that puts the news into historical perspective. The article below was originally published at HNN.

In a fascinating paper, Princeton economists Alan S. Blinder (formerly Vice Chairman of the Federal Reserve Board) and Mark W. Watson point to the significance of economic factors in presidential contests (see pages 14-16, especially). Their synopsis of elections since the end of the Second World War reveals that presidential candidates operated with distinct advantages or disadvantages, depending on whether their party or their opponent’s party recently governed in a period of prosperity or economic hardship. In many instances the state of the economy appeared to make as much or more of an impact on the presidential race than the candidates’ personal attributes, campaign strategies, or debating skills.

It is intriguing to expand upon the insights of Blinder and Watson and consider the potential influence of economic conditions on the 2016 presidential race. The state of the economy could play a major role in the outcome. But long-term wage stagnation could make that factor less significant in 2016. The disruptive character of stagnant wages was evident in the 2014 congressional elections. Even though the U.S. economy had improved substantially in recent years, Democrats lost decidedly in many sections of the nation. Democrats’ failed to excite voter support, partly because average American workers had seen little or no personal economic improvement in the years of the Obama presidency and Democratic influence in Washington. If this situation does not change in the next few years, the condition of the overall economy in 2016 may not influence the voters’ decisions as much as it has in the past.

Drawing upon insights presented by Blinder and Watson, it is evident that economic factors often affected voters’ judgments in presidential elections up until recent times.

For instance, historians often cite Harry S. Truman’s fighting spirit and the Republicans’ flawed strategies when identifying causes of the Democratic president’s surprise victory in 1948. Yet Truman’s campaign was buoyed by early signs in 1948 of an impressive post-war economic boom. Real Gross Domestic Product (GDP) had dropped precipitously in 1946 (a development that made pundits think Truman would lose in 1948), but a substantial economic recovery was underway by the time of the November, 1948 elections.

Richard Nixon ran for president in 1960. He lost, not only because he ran against a handsome, charismatic, and eloquent Democrat named John F. Kennedy. A third recession of the Eisenhower era, stretching from 1960 to 1961 undermined Nixon’s campaign. JFK excited voters with a promise to “get America moving again.”

Lyndon Baines Johnson won easily against Republican Barry Goldwater in 1964. Goldwater’s image as an extremist hurt his campaign, but economic conditions also made the Arizona Senator’s efforts difficult. The Kennedy/Johnson tax cut of 1964 quickly stimulated business expansion. Voters were in an optimistic mood when they went to the polls in 1964. Four years later, Richard Nixon benefited from the Johnson Administration’s economic troubles. Worries about inflation related to huge U.S. military commitments in Vietnam cut into voters’ support for the Democratic candidate, Hubert Humphrey. Federal efforts to deal with the emerging economic problems through fiscal and monetary policies aided Nixon, who won a race that turned close in the final days.

The economy first helped and then hurt Democrat Jimmy Carter. Shifts in energy prices made a big impact on Carter’s fortunes. Republican President Gerald Ford campaigned under a cloud in 1976. “Stagflation,” a combination of economic recession and price inflation, created difficulties for the GOP’s candidate, as did Ford’s pardon of Richard Nixon. Jimmy Carter secured a victory. Four years later, Carter’s efforts to remain in the White House failed. Jimmy Carter stumbled as a leader, and economic conditions exacerbated his difficulties. Oil prices surged in 1979 and inflation turned worse. The chairman of the Federal Reserve, Paul Volker, tried to tame inflation with tight monetary policies. Business and employment slowed considerably during the months that Carter campaigned for re-election.

In 1980 Ronald Reagan excited voters with promises to revive the economy. Reagans’ popularity slipped during his first two years in office, in large part because of a deep recession. By late 1982, however, Paul Volker’s monetary squeeze appeared to be working. Inflation declined. Additionally, global production of petroleum had expanded and prices dropped substantially. In 1984 Reagan won reelection in a landslide. Perhaps the Republican president’s ebullient personality would have carried him to victory under less promising conditions, but Reagan surely benefited from the favorable economic winds at his back.

Following the Persian Gulf War, President George H. W. Bush received a 90% approval rating and seemed well-positioned to win a second term in 1992. Then a troubling recession in 1990-1991 undermined his popularity. George H. W.’s Bush’s disapproval rating hit 64%. Bill Clinton projected an effervescent personality in the 1992 campaign, but that was not his only advantage over Bush and an independent candidate, Ross Perot. The voters’ unhappiness with the economy figured prominently. Clinton strategist James Carville famously identified the main issue: “It’s the economy, stupid.” Two years after the 1992 victory, Bill Clinton’s presidency was deeply troubled. Republicans crushed Democrats in the congressional races of 1994, and the GOP appeared to have enough clout in Washington to block Clinton’s initiatives. Republicans hoped to make Clinton a one-term president. In 1996, however, the U.S. economy looked much stronger than it had a few years before. Voter optimism helped Clinton to dispatch his competitors, Republican Bob Dole and independent Ross Perot.

Unfortunately for the Democrats, their candidate in 2000 chose to keep his distance from Bill Clinton. Al Gore, Vice President during the previous eight years, refused to exploit the Clinton connection to the fullest during his presidential campaign. Gore feared that voters would view an association with Clinton negatively because of the president’s scandalous relationship with a young intern. Al Gore made a strategic mistake. The U.S. economy had been on a sustained climb though most of Bill Clinton’s eight years. Gore failed to take adequate credit for Clinton-era prosperity. He won the popular vote but lost the election after the Supreme Court intervened in the Florida vote count.

Barack Obama benefited from economic conditions during both of his presidential campaigns. With the collapse of Lehman Brothers investment bank in September 2008, the U.S. and global economies began to crash. Many voters associated Republicans with the financial crisis. They backed the newcomer, Barack Obama over Senator John McCain, who displayed little understanding of economics during the campaign. In 2012 Republican Mitt Romney claimed that he, a successful businessman, knew better than President Obama about creating jobs and fostering prosperity. Romney’s message failed to resonate. There were many reasons for Romney’s defeat, but one of the most important was his inability to gain traction on economic issues. Mitt Romney could not effectively characterize Barack Obama’s administration as incompetent in business affairs. Stock markets had climbed steeply since their lows in early 2009, and the unemployment rate had declined substantially by election time.

Since the U.S. economy has been on an upward tear from the first months of Barack Obama’s presidency, Hillary Clinton or some other Democratic presidential candidate should have a distinct advantage in 2016. The Democrats’ future also looks promising because of the sudden drop in energy prices. A slowdown in global demand for oil, declining production costs related to fracking, and a glut of oil in global markets have rapidly cut the cost of a barrel of crude oil from about $100 to less than $70. Price drops work like a large tax cut or a welcome pay raise. In coming months and, perhaps, years, Americans will need less money to purchase gas for their car or heat their home. Consumer products may be cheaper, since they will be manufactured and transported at reduced cost. By the time of the 2016 elections, the benefits of reduced expenditures for energy may be more evident to voters than they were at the time of the 2014 congressional elections. Optimistic voters may reward the Democratic presidential candidate.

Democrats cannot, however, be certain that the U.S. economy will be dynamic in November, 2016. There are some troubling signs on the horizon. Global business has been slowing, especially in Europe. The U.S. economy has been growing more impressively, but Wall Street analysts warn that the lengthy stock market boom cannot last forever. Values have been climbing since early 2009. A serious market “correction” might arrive at a bad time for Democrats – weeks or months before the 2016 election.

Also, despite vigorous business expansion in recent years, most working Americans are not realizing true economic improvement. Employment opportunities have expanded, but many of the new jobs are part-time. They do not pay good wages, and they offer few benefits. In contrast, individuals with technical skills and advanced degrees often command strong earnings. Income inequality has become a glaring issue.

In recent decades individuals and families at the top have realized extraordinary gains, while the rest of the U.S. population saw disappointing returns. The Congressional Budget Office found that between 1979 and 2007 the top 1% of households realized 275% growth of inflation-adjusted income. In contrast, the bottom 20% of Americans saw growth in those 28 years of just 18%. Another study by the Economic Policy Institute revealed that between 1983 and 2010 approximately three-quarters of all new wealth went to the richest 5% of households, while the bottom 60% of households actually turned poorer over that period. Data from the Labor Department reveal that income for the middle 60% of the U.S. population has stagnated since 2007.

The angst of working Americans was evident in the 2014 congressional elections. Despite improvements in equity markets and corporate earnings, voters felt a pinch. Republicans cast President Obama as the culprit in their campaign rhetoric. They claimed his flawed leadership left millions of Americans struggling to earn a decent living.

President Barack Obama and Democratic senators have been dominant in Washington in the years of a remarkable economic turnaround, yet they failed to convince voters that their policies helped in significant ways to foster a recovery. A post-2014 election headline in the New York Times indicated, “Democrats Say Economic Message Was Lacking.” The Times reported thatDemocrats could not project the kind of broad vision in 2014 that inspires voter turnout. Larry LaRocco, a former Democratic congressman from Idaho, identified the challenge Democrats face as they look ahead: “What do we stand for?” he asked. In 2016 Democrats will need to convince voters that they do, indeed, have an effective plan for economic growth.

The Democrats’ efforts to persuade voters that the Obama presidency has produced results may become easier if recent employment statistics augur a trend. The Labor Department reported that employers added 321,000 jobs in November and, even more significant, the hourly earnings of ordinary workers jumped sharply. If future reports continue to show wage gains, the Democratic candidate will benefit from favorable economic winds. If the November gains prove a fluke and wage stagnation persists, Republicans may be able to capitalize on voter discontent in 2016, much as they did in 2014.

Whatever the situation, economic conditions will likely affect the outcome– as it usually does in presidential contests. Yet when writing and speaking about the campaign, many pundits will overlook this important factor. They will focus on the candidates’ personalities, rhetoric and strategies rather than evidence from history that suggests the state of the economy often has a major impact on the voters’ decision.

Robert Brent Toplin taught at Denison University and the University of North Carolina, Wilmington. Since retirement from full-time teaching, he has taught some courses at the University of Virginia. Toplin has published several books and articles about history, politics, and film.

Your browser, Internet Explorer 8 or below, is out of date. It has known security flaws and may not display all features of this and other websites.

Learn how to update your browser