Pandemic likely to alter normal Presidential election effect on economy

UA Walton College economist Mervin Jebaraj isn’t predicting who might win the Presidential election a month from now, but he is predicting that business behavior will be different than normal years.

Jebaraj said the COVID-19 pandemic and its effect on the economy has already slowed business investment, which normally occurs as firms display caution leading up to a Presidential race outcome.

“What we would generally expect in a Presidential election year in terms of effects on the economy is that businesses slow down as we lead up to the election, as they’re waiting to see how it shakes out, trying to figure out what policy changes are coming around the horizon. Businesses generally pull back from investing right before the election, especially if there’s a lot of uncertainty about which candidate is going to win,” he said.

“However, we’re probably not going to see any type of pullback during this time, because we’re already in a recession right now. Businesses have already pulled back, and so we’re not going to see an additional pullback or a pause in investment because businesses are currently not investing,” Jebaraj said. “They’re trying to recover from this recession… What we’re seeing is a continuation of what’s been happening all this year with the pandemic and the recession that came as a result of the pandemic.”

Appearing on this week’s edition of Talk Business & Politics, Jebaraj also discussed the state’s rising unemployment and the state-national struggles of the travel and tourism sector.

He said that August’s state unemployment of 7.4%, which was up three-tenths of a percent, was not necessarily horrible because a lot of workers came back into the labor force looking for work. In June and July, a portion of those workers had disappeared.

“If there’s ever a good reason for the unemployment rate to go up in this particular climate, it’s because the labor force actually increased the number of people looking for work increased,” he said.

Jebaraj still has major concerns for the travel and tourism industry. In the past week, Disney announced layoffs of and several airlines said they would furlough or lay off tens of thousands of workers due to a struggling recovery.

“We cannot afford that as a correction to our economy,” he said. “In Arkansas at the peak of this, we lost about 40,000 jobs in that particular industry. We’re still down about 17-18,000 jobs in the Leisure and Hospitality industry.”

“There is a lot of hurt for this particular industry and it is absolutely imperative that Congress, before doing anything else, really get another stimulus bill up and running,” Jebaraj added. “We really do need another stimulus bill, we need additional money, especially PPP loans targeted to the Leisure and Hospitality Industry and targeted to small businesses in this industry.”

You can watch Jebaraj’s full interview in the video below.