Will the Obama reelection campaign take the bait and start running hard on the president’s economic record?
New job numbers out today from the Labor Department show the unemployment dropped to a near three-year low of 8.5 percent in December. What’s more, nonfarm payrolls increased by 200,000 last month, way above economists’ expectations for a 150,000 gain. Those two employment statistics, when added to a likely fourth-quarter GDP number of 3-3.5 percent (which would be the best showing since the second-quarter of 2010) — sure make it tempting for the White House to engage in at least a smidgen of economic triumphalism. Something like: “It’s been a long road and we have a lot further to go, but our plan is working. Four more years.”
Not “Morning in America” exactly, but maybe “Breaking Dawn in America.”
But such a feel-good campaign strategy would be risky. Those headline economic numbers are terribly misleading, hardly reflecting the devastation most Americans still see every day. An 8.5 percent unemployment rate? Please. If the size of the U.S. labor force was as large as it was when Barack Obama took office, the unemployment rate would be 10.9 percent. But since so many people have gotten discouraged and stopped looking for work– and thus disappeared by government statisticians — the jobless number has been artificially depressed. A better gauge of the jobs picture is the broader U-6 rate, which includes part-timers who would rather have full-time jobs. It stands at a whopping 15.2 percent.
Then there is that 200,000 number. As Goldman Sachs points out:
Part of the strong gain reflected a 42k increase in employment for “couriers and messengers”, which likely reflects temporary employment for holiday gift delivery persons. A similar spike occurred last December and was reversed in the following month, indicating that the payroll statistics are not properly seasonally adjusting for this type of hiring. Taking this into account, December employment growth was still firmer than the preceding two months, but the underlying trend is likely still below 200k.
And even 8.5 percent is way off from where Team Obama said the unemployment rate would be if Congress passed the $800 billion stimulus (via the must-read blog, The Right Sphere):
And as Matt McDonald at Hamilton Place Strategies notes:
Labor force participation averaged 66 percent through most of the 2000s. It now stands at 64 percent after declining again last month. If more people were still looking for jobs, and the participation rate were back up at 66 percent, the unemployment rate would now be 11.4 percent instead of 8.6 percent.
And what about Obama’s recent prediction that the unemployment rate could break 8 percent by Election Day? McDonald points out that to reach that point, the economy needs to see 254,000 jobs per month between now and then. But we have not seen that level of job growth since 1999, when the economy grew at a 4.8 percent clip. Then there is this tidbit:
CBO last spring projected that between 2010 and 2012 the labor force would add 2.9 million workers. Halfway through that period, we’ve actually added just shy of 200,000 workers. If those workers do materialize, we’re going to need a much higher job number each month just to keep pace, closer to 170,000 jobs per month than the more typical 130,000 jobs per month.
And as it is, this may well be the zenith of the Obama recovery, what with Europe weakening and massive policy uncertainty here at home — including massive tax hikes scheduled for 2013.
And remember, the unemployment rate may not be the key variable in deciding our next president. As I wrote last month:
Yale political scientist Ray Fair has a highly regarded election forecasting model that takes into account factors such as the power of incumbency, real per capital GDP growth, and inflation. But the unemployment rate is not one of them. If you assume the economy in 2012 looks a lot like the economy in 2011—as many Wall Street economists currently do—here is how the presidential election would play out:
Bottom line: As you can see, President Obama would get less than 48 percent of the two-party vote and would be unlikely to command an electoral college majority. (Interesting sidenote: Incumbent presidents very rarely win with worse popular vote percentages than for their first term.) Run on the economy? Good luck with that.