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Obama’s re-election fortunes ride on rising economy
Jobless rate down, stock markets up
Question of the Day
President Obama’s re-election prospects are getting a boost from the plunging unemployment rate and the pickup in the economy and financial markets this year, economic and political analysts say.
The economic improvement since the middle of last year has been marked, with unemployment falling from more than 9 percent to 8.3 percent and economic growth rising from less than 1 percent to healthy annual rates closer to 3 percent. All this prompted a solid rally in stocks that, by the end of last month, had pushed the Dow Jones industrial average to more than 13,000 for the first time since 2008.
While threats remain and all sides agree that the economy still has far to go to recover all the ground lost during the Great Recession, the unexpected and sometimes startling gains bode well for an incumbent coming so close to the election.
Especially helpful to Mr. Obama was evidence last month that, thanks to an acceleration of job growth, the lower jobless rate held up despite a surge of nearly a half-million new job seekers into the market looking for work.
“More jobs are popping up here, there and almost everywhere,” said Sung Won Sohn, an economics professor at California State University Channel Islands. “President Obama, facing a tough election this year, is smiling.”
Behind the fall in unemployment was a significant pickup in job growth in the past three months to nearly a quarter-million new jobs a month. That exceeds the average growth rate during the 2000s expansion and is strong enough to keep drawing down the unemployment rate if such growth continues this year. Some economists are predicting unemployment will fall to 8 percent or below before the election.
“To be sure, it is not a home run,” Mr. Sohn said of the monthly job totals, but rather the economy is hitting “solid singles” that are adding up in a significant way. “Employment gains are feeding upon itself, pointing to a durable recovery,” he said.
Marcus Bullus, trading director at MB Capital, said the robust job performance is an elixir for the financial markets.
“With such strong data, the bulls will feel vindicated, the president relieved,” he said.
Mr. Obama expressed satisfaction with the economic progress Friday as he visited a Rolls-Royce plant in Virginia that makes jet-engine parts.
“Day by day, we are restoring the economy from crisis,” he said, contrasting the recent job performance with the hemorrhaging of 600,000 jobs a month in the weeks before he took office in 2009.
Republicans counter that the unemployment rate remains too high and the rate of underemployment — including discouraged workers and those working part time who want full-time jobs — remains near 15 percent.
Moreover, if those idled workers continue to venture back into the job market in hopes of finding work, as some did last month, it will require thousands more jobs to keep the unemployment rate from rising again, said Douglas Holtz-Eagan, a Republican economic adviser and former Congressional Budget Office director.
“The focus has shifted to whether the unemployment rate will drop under 8 percent by Election Day,” he said. “It is not going to happen” if nearly 4 million underemployed workers start looking for jobs again, he said.
But even Mr. Holtz-Eagan conceded that at the current rate of job growth, achieving 8 percent “does not appear to be much of a stretch.” He suggested that the surprisingly strong growth in jobs this winter was artificially boosted by unusually mild weather, and some of the gains will be retraced in coming months.
Economic studies show that it is not so much the level of unemployment but the rate of change or improvement in the months prior to the election that influences voters.
“The point is really are we getting better, or are we getting worse, and how fast is it changing. Whether the unemployment rate is 6 percent or 9 percent matters less,” said Christopher Wlezien, a political science professor at Temple University and co-author of a soon-to-be-published book, “The Timeline of Presidential Elections.”
He noted that there was not much difference in the level of unemployment when President Carter lost his re-election bid in 1980 with a 7.5 percent unemployment rate and President Reagan won re-election four years later with a 7.2 percent rate. The difference between the two elections was unemployment was climbing rapidly under Mr. Carter, but falling quickly under Reagan, he said.
The unemployment rate plunged 1.3 percentage points in the year leading up to Reagan’s landslide re-election. While unemployment has fallen quickly since August, it has not dropped as far as it did under Reagan, so whether the decline continues in the months ahead could be critical for Mr. Obama’s re-election, Mr. Wlezien said.
The history of elections shows that the economy’s performance “matters more and more as time goes by” in the months building up to the election, he said.
Whether the economy will keep up its recent spurt of growth is a matter of strenuous debate among economists. Many worry about a repeat of last year, when the economy started the year on a robust note but quickly faded under the weight of fast-rising gasoline prices and a devastating earthquake in Japan that held back growth in manufacturing for months.
Gas prices appear to be making another run at records of more than $4 a gallon as they did last year, this time in response to rising tensions in the Middle East. Economists say a repeat of last year’s high gas prices would hold back growth, but would be unlikely to entirely derail the economic recovery or snuff out growth in the job market.
A war in the Middle East sparked by Iran’s nuclear ambitions, on the other hand, might spike gas prices as high as $5 a gallon and be fatal to the recovery, according to Standard & Poor’s economists.
One threat to the economy — the long-running European debt crisis — has subsided substantially in recent months. Global financial markets have calmed in response to efforts by the European Central Bank to flood struggling European banks with more than $1 trillion in cash since December.
That has enabled the U.S. stock market to avoid the wild gyrations seen last year in response to the European crisis and stage a recovery.
Moreover, Greece’s success at getting its creditors to accept a 50 percent cut in bond payments last week, avoiding an uncontrolled default on its debt, removes a ticking time bomb that many analysts feared could go off and blow up the global economy and markets.
“Fortunately, for President Obama, he can now scratch the euro area off the list of potential pre-election risks,” said Jacob Funk Kirkegaard, an analyst at the Peterson Institute for International Economics.
“No large European bank is going to go bust” before the November election as long as the European Central Bank keeps the money spigots open, he said. Although Europe’s economy has gone back into recession, the “euro area stagnation is unlikely to materially affect the U.S. economy and hence the election campaign,” he said.
Mr. Kirkegaard noted that Greece’s settlement with bondholders Friday, while officially labeled a default by Wall Street ratings agencies because it was coerced, turned out to be a “nonevent” in the markets.
“October surprises can always pop up and suddenly change the course of elections,” he said. “But if an unforeseen event upends President Obama’s re-election quest, the origin is not likely to have been in Europe.”
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