How Every President Since Hoover Has Affected the Economy
The U.S. GDP growth rate measures the nation's economic growth. It is the percent change in the gross domestic product (GDP) from one quarter or year to the next. That makes it a good way to determine which president has had the biggest impact on the economy.
The business cycle explains why faster growth is not always better growth. If the economy expands too fast, it will create an asset bubble. When that bubble bursts, the resulting contraction leads to a recession. To create a healthy economy, growth must be sustainable. Economists agree that the ideal GDP growth rate is between 2% and 3%.
- Faster growth is not always better.
- A president influences growth through fiscal policy.
- Wars, natural disasters, and recessions influence a president’s record.
- Roosevelt had the highest annual GDP growth rate in 1942.
- Hoover had the lowest annual GDP growth rate in 1932.
How a President Influences Growth
Presidents influence growth through fiscal policy. They boost the economy by lowering taxes and increasing government spending. They prevent a bubble by increasing taxes or cutting spending. To do either, they must work within existing laws or convince Congress to change those laws.
Presidents don’t control monetary policy or interest rates. That's the realm of the Federal Reserve, the nation's central bank. To stimulate growth, the Fed encourages borrowing by lowering interest rates. To slow growth, it reduces bank lending by raising interest rates.
Some may argue that monetary policy influences growth much more than fiscal policy does. If a president spurs growth too much, then the Fed may use monetary policy to prevent inflation or a bubble.
Presidents With the Best and Worst Annual GDP Growth
President Franklin D. Roosevelt had the best single year of growth in 1942, when the economy grew 18.9%. Herbert Hoover had the worst year in 1932 when the economy contracted 12.9%. The Great Depression affected both, but spending to gear up for the nation’s entry into World War II boosted FDR’s growth numbers. These unusual situations created extremes in economic growth.
World War II also affected President Harry Truman, as the economy contracted 11.6% in 1946. Government spending fell once the war ended.
The best quarterly GDP growth rate is 33.1% for the third quarter (Q3) of 2020. The worst quarterly growth rate -31.4% in Q2 of 2020. Both occurred under President Trump, who declared a national emergency in March 2020 to slow the spread of the COVID-19 pandemic.
Annual growth rates became more moderate after World War II. The fastest post-war year of growth was under President Ronald Reagan. In 1984, the economy grew by 7.2%, which was due to the end of the 1981-1982 recession. The worst annual post-war contraction was -2.5% in 2009, President Barack Obama’s first year. That contraction was caused by the 2008 financial crisis.
Looking at the best and worst years isn’t really a good way to gauge a president’s economic impact. These outliers are often caused by events outside of the president’s control. In addition, if the economy grows too fast, it will create inflation or an asset bubble. Instead, the best president will maintain a steady rate that’s sustainable over time.
Presidents With the Best and Worst Average Annual Growth
A method that reduces the impact of these extremes is the average annual growth rate. That’s the sum of all the growth rates during a president’s term in office, divided by the number of years.
The presidents with the best growth will average between 2% and 3%, which is considered by many economists the healthiest range.
Three presidents had average annual growth within this ideal range. They include Presidents Dwight Eisenhower at 3%, George H. W. Bush at 2.3%, and George W. Bush at 2.2%. Roosevelt’s 9.3% annual average was the highest, while Hoover’s decline was the lowest.
Post-World War II, President Lyndon B. Johnson had the highest average, at 5.2%. He boosted growth with government spending on the Vietnam War and the Great Society programs. The next was President John F. Kennedy, at 4.4%, who ended the 1960 recession.
The lowest post-World War II annual average will likely be under President Trump. Despite healthy growth during the first three years of his term, the economy was battered by the COVID-19 pandemic in 2020, which will likely bring down the 2020 annual GDP rate of growth.
Both Presidents Ford and Obama had average annual growth rates of 1.6%. Ford suffered from stagflation caused by President Nixon while Obama struggled with the financial crisis created under President Bush’s term.
GDP Growth by President
Here's a more detailed look at each president’s economic record, with summaries of their reactions to the recessions, wars, and other events they encountered.
Herbert Hoover (1929-1933)
Herbert Hoover’s average annual GDP growth rate was -9.3%, the worst of all presidents (based on GDP rates from 1930 to 1933; the BEA does not include 1929 in its historical numbers). The Great Depression began in August of 1929 and the stock market crashed in October. Hoover’s response was laissez-faire economics, as he believed government assistance would make people stop working. His policies did not work, causing unemployment to rise to 25% by 1933.
In 1930, Hoover signed the Smoot-Hawley Tariff Act to protect domestic industries. Other countries retaliated, shrinking global trade. As a result, the economy contracted 12.9% in 1932, the worst year of all presidents.
Franklin D. Roosevelt (1933-1945)
President Franklin Delano Roosevelt launched the New Deal to end the Depression. He created new agencies to stabilize banks, create jobs, and boost manufacturing. The New Deal subsequently ended the Depression in 1934. Afterward, FDR increased taxes to balance the budget but that resulted in a recession in 1937.
In 1941, Japan attacked Pearl Harbor. FDR’s increases to the defense budget finally ended the Depression, but growth came at a cost. Percent-wise, FDR added the most U.S. debt of any president.
Harry Truman (1945-1953)
President Harry Truman presided over two mild recessions. The 1945 recession was caused by a reduction in government spending due to the end of World War II. The 1948-1949 recession was a market adjustment within the post-war boom.
The 1947 Truman Doctrine pledged U.S. aid to allies threatened by communism. The Marshall Plan spent $12 billion to rebuild Western Europe after the war.
The Korean War began in June 1950. The resulting $30 billion in government spending helped boost economic growth during the rest of Truman’s term.
Dwight Eisenhower (1953-1961)
President Dwight D. Eisenhower ended the Korean War in 1953, creating the 1954 recession. He then boosted growth with the 1956 Federal-Aid Highway Act. By the time the construction was over, the federal government spent $119 billion of the $130 billion it cost to build the interstate highway system.
In 1957, Eisenhower created NASA to advance U.S. leadership in space exploration. The 1957-1958 recession was caused by the Federal Reserve raising interest rates. Eisenhower’s desire to balance the budget meant he refused to use fiscal policy to stimulate the economy.
John F. Kennedy (1961-1963)
President John F. Kennedy helped end the 1960 recession by increasing spending. In 1961, he created a food stamp pilot program in several states. He also improved Social Security benefits and increased the minimum wage.
Lyndon B. Johnson (1963-1969)
President Lyndon B. Johnson was sworn in two hours after JFK’s assassination. He won the 1964 election with 61% of the vote. His popularity allowed him to vastly increase government spending and avoid any recessions.
LBJ pushed through the passage of Kennedy's tax cuts and civil rights bill. His 1965 Great Society program created Medicare, Medicaid, and public housing. It also addressed crime, urban renewal, and conservation. LBJ escalated the Vietnam War but could not win it.
Richard Nixon (1969-1974)
In 1971, the "Nixon Shock” imposed wage-price controls, imposed tariffs, and relaxed U.S. commitment to the gold standard.
Tariffs and relaxing the gold standard raised import prices. At the same time, price controls meant companies could not raise prices or lower wages. To stay in business, they were forced to lay off workers, slowing growth. In 1973, Nixon ended the gold standard entirely and the dollar’s value plummeted.
Gerald Ford (1974-1977)
President Gerald R. Ford inherited stagflation. In 1975, he cut taxes and reduced regulation which ended the recession, but inflation continued.
Jimmy Carter (1977-1981)
President Jimmy Carter's presidency was also overshadowed by stagflation. He deregulated oil prices to spur domestic production. He also deregulated the trucking and airline industries while expanding the national park system. In 1979, Iranians took Americans hostage, causing the economy to contract.
Ronald Reagan (1981-1989)
President Ronald Reagan faced the 1981 recession. The Federal Reserve caused the recession by raising the fed funds rate to 20% to end inflation. Reaganomics promised to end the recession by reducing the increase in government spending, cutting taxes, and deregulating.
Instead, Reagan increased the budget by 2.5% annually. He cut income and corporate taxes but increased the payroll tax to ensure the solvency of Social Security. He eased bank regulations, which eventually led to the 1989 Savings and Loan Crisis.
George H.W. Bush (1989-1993)
George H.W. Bush faced the 1990-1991 recession caused by the Savings and Loan crisis. He agreed to a $100 million bank bailout. The recession reduced revenue, creating pressure to cut spending and balance the budget. Instead, Bush raised taxes, costing him Republican support for his reelection. The first Gulf War also created mild inflation as gas prices spiked.
Bill Clinton (1993-2000)
President Bill Clinton faced no recessions or major wars. He signed the North American Free Trade Agreement (NAFTA), which boosted growth by eliminating tariffs among the United States, Canada, and Mexico.
Clinton created an almost $70 billion budget surplus, lowering the debt. The 1993 Omnibus Budget Reconciliation Act raised taxes on the wealthy. He also briefly cut federal spending by reforming welfare in 1996.
George W. Bush (2001-2009)
President George W. Bush faced the 9/11 attacks, Hurricane Katrina, and the 2008 financial crisis. First, he fought the 2001 recession with tax cuts. He responded to the 9/11 attacks by creating Homeland Security and launching the War on Terror.
In 2005, Hurricane Katrina caused a record $170 billion in damage (adjusted for inflation).
Bush responded to the 2008 financial crisis by sending out tax rebate checks. He nationalized mortgage agencies Fannie Mae and Freddie Mac and insurance giant AIG. He also approved a bank bailout package to prevent a financial collapse.
Barack Obama (2009-2017)
President Barack Obama ended the 2008 recession with the American Recovery and Reinvestment Act (ARRA). It cut taxes, extended unemployment benefits, and funded public works projects. He bailed out the U.S. auto industry, saving jobs.
The 2010 Affordable Care Act expanded health insurance and Medicaid. It slowed the rise of health care costs by encouraging more people to receive preventive care so they didn't have to use expensive hospital emergency rooms as their primary care physician.
The 2010 Dodd-Frank Wall Street Reform Act improved bank regulations. The Obama tax cuts fought ongoing slow growth. Obama ended the Iraq War and wound down the war in Afghanistan.
Obama began negotiations on the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership. He also brokered the International Climate Agreement to address climate change.
Donald Trump (2017-2020)
Before the 2020 COVID-19 pandemic, President Donald Trump had no recessions and no new wars. Nevertheless, he increased spending and cut taxes. The Fed responded to those expansionary fiscal policies by raising interest rates.
Trump advocated protectionism. He withdrew the U.S. from the Trans-Pacific Partnership, renegotiated NAFTA, and launched a trade war with China and other trading partners.
In March 2020, Trump declared a state of emergency as the pandemic broke out in the U.S. Nonessential businesses closed while Americans sheltered-in-place. Stimulus measures, such as the $2 trillion CARES Act, were not enough to keep the economy afloat. The Congressional Budget Office (CBO) predicts that the economy will contract 5.9% in 2020. As of November 2020, based on the first three-quarters of the year, GDP is an average of -1.1% per quarter.
Stanford University. "The Facts of Economic Growth," Page 3. Accessed Nov. 4, 2020.
Bureau of Economic Analysis. “National Income and Product Accounts Tables: Table 1.1.1. Percent Change From Preceding Period in Real Gross Domestic Product." Accessed Nov. 4, 2020.
Bureau of Labor Statistics. "Labor Force, Employment, and Unemployment, 1929-39: Estimating Methods," Page 2, Table 1. As of July 1 of each year. Accessed Nov. 4, 2020.
Federal Reserve History. "Recession of 1937-38." Accessed Nov. 4, 2020.
National Bureau of Economic Research. "U.S. Business Cycle Expansions and Contractions." Accessed Nov. 4, 2020.
Mercatus Center, George Mason University. "The U.S. Postwar Miracle," Page 1. Accessed Nov. 4, 2020.
National Bureau of Economic Research. "A Case Study: The 1948-1949 Recession," page 29. Accessed Nov. 4, 2020.
U.S. State Department Office of the Historian. "The Marshall Plan, 1947." Accessed Nov. 4, 2020.
Congressional Research Service. "Costs of Major U.S. Wars." Page 2. Accessed Nov. 4, 2020.
Federal Highway Administration. "History of the Interstate Highway System." Accessed Nov. 4, 2020.
Federal Reserve Bank of St. Louis. "Effective Federal Funds Rate." Accessed Nov. 4, 2020.
University of Nebraska Lincoln. "President Eisenhower, Economic Policy, and the 1960 Presidential Election," Page 418. Accessed Nov. 4, 2020.
University of Virginia Miller Center. "John F. Kennedy: Domestic Affairs." Accessed Nov. 4, 2020.
The White House. "President Lyndon B. Johnson." Accessed Nov. 4, 2020.
The White House. "Gerald R. Ford." Accessed Nov. 4, 2020.
University of Virginia Miller Center. "Jimmy Carter: Foreign Affairs." Accessed Nov. 4, 2020.
Board of Governors of the Federal Reserve. "Historical Changes of the Federal Funds Rate & the Discount Ra Te (1971-Present)." Accessed Nov. 4, 2020.
Library of Economics. "Reaganomics." Accessed Nov. 4, 2020.
Congressional Budget Office. "An Analysis of President Reagan's Budget Revisions for Fiscal Year 1982." Accessed Nov. 4, 2020.
University of Virginia Miller Center. "George H.W. Bush: Domestic Affairs." Accessed Nov. 4, 2020.
Office of Management and Budget. “Historical Tables,” Download Table 1.1 - Summary of Receipts, Outlays, and Surpluses or Deficits: 1789-2021. Accessed Nov. 4, 2020.
NOAA. "Billion-Dollar Weather and Climate Disaster Events." Accessed Nov. 4, 2020.
The White House, President George W. Bush. "President Bush Helped Americans Through Tax Relief." Accessed Nov. 4, 2020.
Congressional Budget Office. "An Update to the Economic Outlook: 2020 to 2030." Accessed Nov. 4, 2020.