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OFF TO THE RACES

Indications for 2012

Top economists’ predictions for the coming year suggest that growth and employment could be a challenge for President Obama’s reelection chances.

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Job-seekers: A 2012 bellwether.(Tom Pennington/Getty Images)

Release of last’s week’s unemployment figures created a field day for spin-meisters.  Democratic press secretaries could point to the 9.0 percent unemployment rate as the best since April 2009 and as the second consecutive month of declines in the rate, which went from 9.8 percent in November to 9.4 in December.  

Republican press secretaries could point to the paltry 36,000 net new jobs, the lowest in four months and nowhere near the 150,000 to 200,000 generally considered necessary to keep up with population growth and chip away at chronic unemployment.  

 

The report appears to be affected by both heavy snows in many regions and the periodic population count adjustments to the numbers on which the rate is calculated.  

Suffice it to say that the pros will eagerly await the next few months’ reports to see if they fit into that pattern and will also want to see if the January numbers are revised when more complete data are available.

The “U-6” rate, an alternative measure of labor underutilization that adds up rates of unemployment—those working part-time but seeking full-time work as well as those who have given up looking—came in at 16.1 percent, down from 16.7 percent in December and 17 percent in October and November.

 

In January of last year the U-6 rate was 18 percent. Though it is down 2 points in a year, it is still about twice the normal rate. While largely unpublicized, this rate is probably a better measurement of the kind of unemployment and underemployment that affects many families and drives their attitudes about the economy.

Unquestionably, the economy and particularly the jobs picture will be important components in President Obama’s reelection equation.  

White House staffers must be looking enviously at the historic data during the period that led up to President Ronald Reagan’s reelection in 1984.

After unemployment peaked at 10.8 percent in time for the 1982 midterm election, strong economic growth in the latter half of 1983 and through 1984 dropped the unemployment rate down to 7.2 percent by the November 1984 election, allowing the president to run on the “Morning in America” theme and rack up a 49-state landslide.

 

It is highly unlikely that unemployment will drop to 7.2 percent by November 2012. A decline to around 8 percent would likely bode well for Obama’s reelection chances. If it remains around 9 percent, one can argue that most any major Republican nominee has a good chance of winning. Under this argument, the tipping point is between 8 and 9 percent.

Among 49 top economists surveyed this month by Blue Chip Economic Indicators, the consensus gross domestic product forecast was 3.2 percent for this year and 3.3 percent for next year, nowhere near the levels of growth that worked to benefit Reagan—4.5 percent in 1983 and 7.2 percent in 1984.  

The 10 most optimistic forecasts among the 49 projected an average GDP growth rate of 3.9 percent for 2012, while the pessimists were at 3.2 percent.  

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For unemployment, the consensus forecast was 9.3 percent for 2011 and 8.6 percent for 2012. The 10 most pessimistic averaged 9 percent, and the 10 most upbeat averaged 8.2 percent.

Obviously, there are economic indicators beyond GDP growth and unemployment that are important. Economists watch inflation carefully, particularly with energy, food, and other commodity costs. They also eye real disposable income, which will be goosed by the temporary cut in payroll taxes enacted during the recent lame duck session of Congress.

None of this is to suggest millions of Americans rush to their computers at 8:30 a.m. on the first Friday of every month to find out the latest unemployment rate, and allow that to solely drive their assessment of the president.

But a strong economy and improving jobs picture does tend to validate a president’s economic stewardship, while a weak economy and poor job growth tends to repudiate it, fairly or not.  

Differences voters have with Obama over priorities and policies during his first two years in office would likely be exacerbated or perpetuated by weak GDP numbers and high unemployment rates, while strong growth and meaningful job creation would at least help overcome disagreements that they might have had with him.

Unfortunately, world developments and foreign policy are not easily quantifiable, yet they are still critically important as well, with events in Tunisia and Egypt reminding us that there is more to whether a president is reelected than the economy and jobs.

It’s interesting that while most objective foreign policy analysts are giving the president and his administration good reviews in their efforts to balance competing interests in Egypt—fancy footwork indeed—his job approval ratings have dipped a bit in Gallup’s tracking polls since early last week.  

The situation in the Middle East is the only plausible explanation. Messy foreign policy situations make it hard to project strong leadership and control.

Reconciling American aspirations for democracy and freedom around the world on the one hand, with the competing objective of wanting a government that is friendly and reliable to the United States in a critical region, is not easy, and most of what takes place is behind the scenes.

This is a situation where day-to-day measurements of public opinion mean a lot less than what the reality is six months and a year from now.

This article appears in the February 8, 2011 edition of NJ Daily.

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