Sunday, May 25, 2008

With overwhelming majorities of voters and other survey respondents telling pollsters that the economy is the most important issue during the 2008 election year, the unemployment rate, as it has in comparable periods, will play a major role in the presidential election. As history has demonstrated, not only will the level of the unemployment rate be a major factor; so, too, will its trend.

The April unemployment rate was 5 percent, which is relatively low by historical standards. Indeed, the current unemployment rate is comfortably below the average unemployment rates for the 1970s (6.2 percent), the 1980s (7.3 percent) and the 1990s (5.75 percent). The April unemployment rate of 5 percent is the same as the 2000-07 average rate.

The April unemployment rate is also near or below prevailing unemployment rates in November of many presidential-election years. The November unemployment rates for elections since 1960 were as follows: 6.1 percent (1960), a recession year when John F. Kennedy defeated two-term Vice President Richard Nixon; 4.8 percent (1964), when President Lyndon Johnson won a full term after completing Kennedy’s first term; 3.4 percent (1968), when Nixon defeated then-Vice President Hubert Humphrey; 5.3 percent (1972), when Nixon won a second term in a landslide over George McGovern; 7.8 percent (1976), when Jimmy Carter defeated incumbent Republican President Gerald Ford, who replaced Nixon after he resigned; 7.5 percent (1980), a recession year when Ronald Reagan defeated Mr. Carter; 7.2 percent (1984), when Reagan won re-election in a landslide over Walter Mondale; 5.3 percent (1988), when then-Vice President George H.W. Bush succeeded Reagan by beating Michael Dukakis; 7.4 percent (1992), when Bill Clinton defeated incumbent Bush; 5.4 percent (1996), when Mr. Clinton won re-election by beating Bob Dole; 3.9 percent (2000), when George W. Bush defeated then-Vice President Al Gore; 5.4 percent (2004), when President Bush won re-election by beating John Kerry.

According to the preceding review of the last 12 presidential elections, today’s unemployment rate of 5 percent is lower than nine and higher than three (1964, 1968 and 2000). Interestingly, the party out of power won the White House in 1968 and 2000 when the unemployment rate (3.4 percent in 1968 and 3.9 percent in 2000) was well below today’s rate of 5 percent. What is especially striking about the prevailing unemployment rate for the 2000 election (3.9 percent) is the fact that Mr. Gore failed to retain the White House for the Democratic Party despite the fact that the unemployment rate (and, for that matter, the budget balance as well) improved for eight consecutive years during the Clinton-Gore administration. During the 1968 campaign, the Vietnam War overshadowed the fact that the unemployment rate for the September-November period (3.4 percent) was the lowest it had been since October 1953.

On Election Day 1972, 1988, 1996 and 2004, the unemployment rate stood between 5 percent and 6 percent. In all four cases, voters retained the party occupying the White House. Three times they re-elected the president (1972, 1996 and 2004); and once voters promoted his vice president (1988).

On Election Day 1960, 1976, 1980, 1984 and 1992, the unemployment rate was higher than 6 percent. In four of those elections, voters evicted the party occupying the White House. Only in 1984, when the November unemployment rate stood at 7.2 percent, did the incumbent party retain the White House. That accomplishment perfectly illustrates the role that the trend in the unemployment rate plays. While the level of the unemployment rate on Election Day in 1984 (7.2 percent) was relatively high by the Election Day standards, the fact is that the monthly unemployment rate had not been lower than 7.2 percent since April 1980.

Moreover, the unemployment rate had plunged 3.6 percentage points from its cyclical peak of 10.8 percent that had been reached two years earlier (November 1982), which coincided with the bottom of the deepest post-World War II recession. During 1980 and 1992, when incumbent presidents resoundingly lost their bids for re-election despite the fact that the November unemployment rates (7.5 percent in 1980 and 7.4 percent in 1992) were not much higher than November 1984’s 7.2 percent, the unemployment rate had been steadily climbing for some time. Specifically, the jobless rate increased from 5.7 percent in July 1979 to 7.8 percent a year later and from 5.2 percent in June 1990 to 7.8 percent in June 1992.

If the rate continues to rise between now and November, Republican John McCain will likely have difficulty retaining the White House for his party. That would be true even if the jobless rate tops out at 5.3 percent or 5.4 percent (the two levels at which voters retained the White House party four out of four times since 1972). If the economy falls into recession (if it has not already done so), Mr. McCain’s chances will deteriorate further. Since 1960, voters ousted the party occupying the White House during the two presidential-election years that the economy was in recession (1960 and 1980).

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