A First 100 Days That Will Matter

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By Simon Constable

We like to view it as a critical benchmark for United States presidents—the first 100 days in office. After all, Franklin D. Roosevelt certainly made good and historical use of his first three and a half months, accomplishing great strides in 1933 to help turn the tide on the Great Depression. The only problem is that reality doesn’t quite come out so neatly. Indeed, it has been just the reverse, and one has to wonder how the Biden administration will work out.

According to analysis by the financial research firm CFRA, the economy’s growth during the first year of a four-year presidential term was only 2.7 percent on average. That compares to between 3.1 percent and 3.6 percent in years two through four, based on data from June 30, 1947, through September 30, 2020. The difference in growth rates might seem small, but experts say it is a big deal in economic terms.

There are a couple of key reasons why the first year of a presidential term might be rocky. If tough economic medicine is needed, then the moment to administer it is right after an election victory, not just before the voters go to the polls. Hopefully, the harsh medicine will be forgotten by the time the next election comes along, and the economy will be roaring. “Elephants never forget, but voters often do—so politicians deliver the trick when elected and the treat when reelection looms,” says Simon Bowmaker, a professor of economics at New York University’s Stern School of Business.

The clearest case of this phenomenon is Ronald Reagan’s first term, says Neil Howe, demography sector head at Hedgeye Risk Management. In 1981, the newly elected president set about the tough task of fighting the double-digit inflation that was blighting the economy. “He said it would hurt, and it did,” Howe says. That year, the economy shrank 1.8 percent in inflation-adjusted terms, as the Federal Reserve used high interest rates to crush inflation. By 1984, the economy was growing at a hefty 7.2 percent. Voters rewarded the administration with a landslide victory that year.

Of course, another factor in subpar economic growth in year one is that it takes time for new economic policies to work. For instance, tax cuts designed to revive a flagging economy may take 18 months to show any meaningful impact, Bowmaker says. A similar idea is true when government spending gets cut—the economic pain comes first, followed by the benefits much later.

So will the economy buck the trend under Joe Biden’s administration? There certainly are signs that it may do just that and deliver above-average first-year growth. For one, the economy Biden is inheriting may benefit from the tailwind of a rebound following the end of the COVID-19 lockdowns. GDP fell 31.4 percent in the second quarter of 2020 but then bounced back 33 percent in the third quarter, according to data collated by Trading Economics. “It’s the coiled-spring effect,” says Richard Rosso, director of financial planning at Houston-based RIA Advisors. A recovering economy naturally tends to jump back like a tightly wound spring, he explains. And many economists see the recovery continuing into 2021, albeit not with double-digit growth rates.

The economy is also getting a helping hand from another round of fiscal stimulus. Both parties in Congress are working to deliver safety nets to Americans, millions of whom are unemployed. Stimulus checks sent directly to US households should help provide an economic bridge through the most critical development: the viable COVID-19 vaccines going into mass production and mass distribution. So while anything can happen, of course, especially in a pandemic, it’s fine to keep your fingers crossed for a 100 first days that might matter. “I do think it will be different this time,” Rosso says.

A recovering economy naturally tends to jump back like a tightly wound spring.

Constable is a current fellow at the Johns Hopkins Institute for Applied Economics and a former Wall Street Journal TV anchor.