Being a White House Insider Pays Back in Stock Price Gains

(Bloomberg) -- Visiting Barack Obama's White House came with major perks for some of America's top companies. 

A new study from University of Illinois researchers looks at how access to the administration between 2009 and 2015 correlated with stock prices, government contracts and regulatory relief, and finds that companies benefited across a number of metrics after they went to see the President or his officials. It's the lead item in this week's economic research wrap, which also takes a look at how income distribution is shaping up for Americans over their lifetimes and tech price mis-measurement.

Check this column each week for the latest in new and interesting economic studies from around the world. 

Companies enjoy a political-insider boost

An in at the White House came alongside higher corporate stock returns, based on new research by University of Illinois's Jeffrey Brown and Jiekun Huang that uses visitor log data from the Barack Obama White House from 2009 to 2015.

Companies whose officials went to the White House saw roughly a 1 percent stock-price boost in the 70 trading days around the visit, and trips to see the President himself came alongside an even bigger gain. Firms with access to the administration also took a stock price hit after Donald Trump won the presidency in 2016: their shares under-performed peers by about 80 basis points in the three days following the election. 

Investors's positive view on companies with White House ties seems to be at least partly grounded in economic reality. Companies received more government contracts after they met with federal government officials, based on the research, and profits generated from those political-access driven deals represented a 0.09 percent gain for the average firm’s stock. 

Political access correlated positively with firms’s contributions to politicians’s election campaigns, lobbying spending and market share. Still, the authors caution that their results don't necessarily mean that access results in undue influence: for instance, it could be that corporate visits to the halls of power result in more efficient and informed regulation.  

All the President’s Friends: Political Access and Firm Value
Published April 2017
Available on NBER website

Cuba won't necessarily steal neighboring tourists

Fewer restrictions on U.S.-Cuba tourism wouldn't be a zero-sum game for the island nation's neighbors, based on new International Monetary Fund research. Liberalizing US-Cuba tourism could result in between 3 million and 5.6 million American arrivals to Cuba, with most of the change coming from new tourists to the region. While some U.S. visitors would chose Cuba over Caribbean destinations that they otherwise would have visited, it's likely that Europeans and Canadians will increasingly visit other Caribbean countries as prices in Cuba rise on the back of increased American tourism. Some countries with heavy exposure to the U.S. market could suffer, but many of them are already working to diversify. 

Revisiting the Potential Impact to the Rest of the Caribbean from Opening US-Cuba Tourism
Posted April 28, 2017
Available at the International Monetary Fund website

The outlook for U.S.  lifetime income is bleak

Lifetime incomes have been stagnant for men in the U.S. and growth for women has slowed, a trend that is unlikely to reverse, according to a paper by the University of Minnesota's Fatih Guvenen and co-authors.

People are entering the job market with low median incomes, the researchers find, and those aren't recovering as they age. That's driving the stagnation in lifetime income for men and causing an increase in career-long inequality for men and women. 

Given trends among workers who turned 25 in the 2000s, that's especially bad news. In 2009, median incomes for 25 year old males was at its lowest point since 1958. Women's median income at 25 was flat from 1979 to 1997, increased briefly, and returned to its 1979 level in 2011. Based on the developments so far, "the stagnation of median lifetime income seems likely to continue," the authors write. 

Lifetime Incomes in the United States over Six Decades
Published April 2017
Available on the NBER website

Tech productivity is growing faster than we think

The prices of high-tech products are falling more rapidly than official statistics suggest, according to new research by the Fed's David Byrne and co-authors. They construct an alternative tech price index, and gaps between it and the official gauge range from 5.4 percentage points for communications equipment to 13.6 percent for semiconductors between 2004 and 2015.

The implication is that productivity is growing more quickly in high-tech sectors and more slowly in other parts of the economy than official figures would suggest. There are a few different reasons why that major slowdown in the non-tech category could be happening: it could be that  U.S. contributions to manufacturing, which focus on design and control but outsources actual production, are mismeasured, or that business dynamism has declined. 

Prices of High-Tech Products, Mismeasurement, and Pace of Innovation
Published April 2017
Available on the NBER website

To contact the author of this story: Jeanna Smialek in Washington at jsmialek1@bloomberg.net.

To contact the editor responsible for this story: Craig Torres at ctorres3@bloomberg.net, Alister Bull