In 2016, the United States saw its unemployment rate continue to fall, sliding down as low as 4.6 percent in November and keeping an annual average of 4.9 percent, the lowest it’s been since 2009. Thirty-eight states including DC, experienced a drop in their unemployment rates, twenty-seven of which had significant drops- while nine states had increases in unemployment rate, 3 of which had increased significantly.

Since 2016 was an election year, the year’s unemployment rate can be looked at in relation to political influences. It’s common for the unemployment rate, especially in the United States, to decrease during an election year when a left part is leaving office. This is usually done to promote favor for the left party and thus support that party’s candidate, just as it was done this past year. In fact, in many of Former President Obama’s last interviews he firmly insisted on his administration’s, thus his party’s, responsibility on improving the country’s economic condition over the past 8 years, citing the lower unemployment rate. As is economic knowledge, though the unemployment rate decreased, inflation increased to an average of 2.2 percent, though only a slightly increase compared to the inflation of previous election years. And though unemployment did decrease, it was also at the expense of an increased government deficit – which rose for the first time in years to $3.9 trillion, about a third more than the deficit in 2015. This aligns with much of political business cycle theories which describe expansion during the year of election.

Expectations also likely played a role in pulling down the unemployment rate. It’s quite a phenomenon in economics, the idea of self-fulfilling expectations.  The graph below, provided the Wall Street Journal using data collected by Gallup, shows economic confidence in the US over the years up until 2017, distinguishing partisan views.

Liberals’ confidence reached slightly below 30 percent toward mid to late 2016 while Conservatives’ confidence remained low, reflective of the expected results of the election at the time. Taken together and throughout the year, confidence was generally up from previous years. This relatively higher confidence likely led to the increase in employment-population ratios reported by the Bureau of Labor Statistics’. According to the summary, 36 states experienced an increase in employment-population ratios, suggesting that people were more optimistic and thus entered the labor force, successfully finding work.

These brighter expectations may continue, seeing the significant jump in the economic confidence graph shown earlier and the Economic Confidence Index below, as well as the remarkable surges in the Dow that also serves as an economic expectations indicator. However, based on the graph below provided by The Wall Street Journal, though expectations have soared, small business owners have yet to plan on hiring more employees.

Unemployment, Political Business Cycles, and Expectations