On Tuesday, President Obama will give his annual State of the Union address to Congress and the nation. This past Saturday, South Carolina chose Newt Gingrich, the former Speaker of the House, as the front runner in their Republican primary. In three grassroots states, Iowa, New Hampshire and South Carolina, primary voters have chosen three different Republican contenders who are vying for the Chief Executive Office.
For the past 150 years, every President except Lyndon Johnson, Jack Kennedy and Bill Clinton has had to contend with recession during their tenure. (NBER Source) Every Presidential contender promises that they are going to stop the vicious business cycle that inevitably leads to recession. With the advent of “JIT” – Just In Time Inventory – increasingly adopted by businesses and their suppliers in the mid to late 90s, recessions were pronounced a thing of the past. No more would there be an excess build of supply by the nation’s businesses, leading to a sagging economy when product demand inevitably fell. Advances and investments in technology enabled businesses to respond quickly to fluctuations in demand. As the milennium approached, it was truly the dawning of a new age.
What was dawning was the advent of a secular bear market, a long period of time when the market falls for a few years, struggles up again, then falls, then rises again as fear and hope compete against one another.
A few weeks ago, I noted that in the middle of 2011, we had finally come out of an almost four year recession. This was not the official National Bureau of Economic Research end of the recession. That happened in the middle of 2009. This mid-2011 recession end was the “How It Feels” variety as real GDP finally gets back and surpasses the level it was at before GDP started its decline.
Below is a graph comparing the official lengths of recession and the “how it feels” recession length and a comparison of the two during each President’s tenure in the past sixty years. This comparison helps explain the mood of the country when Presidents Ford, Carter and HW Bush lost re-election bids (Ford was actually not up for re-election since he had taken over the Presidency when Nixon resigned in August 1974). The chart also gives an insight into the success of re-election bids by Eisenhower, Nixon, Reagan, and GW Bush. The economic pain was either less than or about equal to the official figures of economic distress during their presidencies.
As he prepares for his third State of the Union address, the lesson for President Obama is stark. History unfortunately repeats itself. It is also a lesson for any Republican Presidential hopeful; the odds are that he will have to contend with a recession during his tenure if he wins election. On the campaign trail, how many Presidential hopefuls of either party ever broach the subject of what their administration will do during the eventual recession while they are in office? Better to promise that it won’t happen on their watch. It will.