Measuring Cumulative Performance and Annualized Performance

When analyzing presidential performance, we track various metrics including the stock market, GDP, and jobs growth. In all of these metrics, we use both cumulative and annualized performance. These are both key tools in understanding presidential performance across these key economic indicators.

What is cumulative performance?

Cumulative growth refers to the total percentage increase of an asset or metric over a specific period of time. The cumulative performance of a fund would indicate its aggregate performance from its launch to over a given period of time ranging from a few months to several years. 

For example for GDP, it shows the overall increase in GDP from the start of a presidency to the end of their term(s) regardless if they served just one or two terms. In the post-war US economy, Clinton and Reagan had the highest cumulative growth with real GDP growing by 35% and 32% over their terms respectively.

These two presidents also ranked the highest in cumulative jobs growth. Clinton’s two terms saw an increase of 18.6 million jobs, while Reagan’s two terms created 16.5 million new jobs. Just by looking at those figures, you will assume that Clinton performed better at creating new jobs. However, comparing their jobs growth percentage-wise would indicate otherwise. 110 million people were in the workforce when Clinton began his term, while there were 91 million employed at the beginning of Reagan’s term.  This indicates 15.6% growth for Clinton and it’s an almost whole percentage lower than Reagan’s 16.5% growth.

What is annualized performance?

Annualizing data provides a straightforward method of comparing growth rates of economic variables presented across various periods that may be of different lengths. To annualize data less than a year, growth rates are adjusted to reflect how a variable would have changed on a yearly basis had it continued to grow at the same rate for the rest of the year. For time periods covering more than one year, the rates are adjusted to see how a variable would have changed on average per year. Doing this makes it easily comparable to other data that’s also annualized. The annualized performance of key economic indicators enables analysts to make quick comparisons of percent changes regardless of the time period. 

When comparing presidential performances, the annualized number factors in the additional terms a president may have served. Take the case of Obama and Bush Sr. who had total GDP gains of 16.3% and 9.2%, respectively. While Obama’s gain is almost double that of Bush Sr., we must take into account that he served two terms while Bush Sr. served only one term. Annualizing these data would show a growth of 1.9% for Obama and 2.2% for Bush Sr. So, Bush Sr. actually performed better looking at the data on an annualized basis.

When we calculate annualized performances, we use the following thresholds before we start showing the data:

  • A quarter’s worth of data for payroll
  • 60 market days for the stock market
  • Two quarters for GDP

These thresholds provide us a more realistic approximation of annual performance. For instance, the stock market might grow 2% on the first day of a president’s term but it might be unrealistic to say that they are experiencing 700% annualized growth.

Annualized vs cumulative performance – which is a better measure?

It’s neither one nor the other. Both metrics serve different purposes and should be considered as you evaluate performance.

In financial investments, a cumulative return can help you approximate how much your investment has appreciated so far. On the other hand, an annualized return enables you to compare that same investment with other investments regardless of the time periods you’ve held them. Comparing annualized vs cumulative return can give you a better picture of the long-term health of your investment.

For presidents, cumulative performance shows the overall impact a president has had in the economy across his or her entire term(s). Essentially, it tells you how much a certain president has done to improve our economy and standard of living. On the other hand, annualized performance shares performance factored for different lengths of presidencies i.e. how many terms a president has held office. It can help you compare the performances of different presidents more objectively especially those that held different terms in office.

As you look at evaluating performance data between presidents, please don’t forget to read our article on How To Interpret our Data on Facts First.