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2012 Election

Unemployment data should help Obama

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Initial jobless claims for the week ending December 10th fell by 19,ooo to a seasonally adjusted 366,000. This is the lowest level since the middle of the 2007-2009 recession, and was a significant improvement over analyst expectations of 380,000 claims. (1)

 These figures reinforce the improvement in US unemployment published by the  Bureau of Labor Statistics for the month of November. (2) The unemployment rate fell to 8.6% of the workforce, which is the lowest level since March 2009. While the recovery is still weak, and millions remain on part-time and temporary jobs, the trend is encouraging.

It should certainly be encouraging to the Obama Administration. The 2012 election will be about jobs, jobs, jobs. Economic growth, profit growth, stock market growth – none of these are going to help the re-election chances of President Obama unless job growth results from them. Let’s take a look at two charts that show how previous presidential incumbents have fared given their unemployment situation:(3)

The first thing that stands out is that when unemployment is above 6%, incumbents lose the elections. This holds true as far back as President Truman (though not shown on the charts). The only exception to this rule is Ronald Reagan. US unemployment stood at 7.4% in October 1984 when he defeated Walter Mondale to win a second term. That is almost the same level of unemployment which cost President Carter (7.5%) and President HW Bush (7.3%) their re-election bids.

More important than the actual unemployment percentage for the hopeful candidate is the direction and strength of the trend in jobs. Presidents Reagan, Clinton and W Bush all benefited from a noticeable fall in unemployment in the months leading up to the election. By contrast, Presidents Carter and HW Bush saw unemployment flat or rising (and above 6%).

What does this mean for President Obama? He can take some comfort from a comparison with the former star of Death Valley Days. (4)

 

 

 

 

 

 

 

 

 

 

 

 

The chart shows President Obama’s unemployment data tracking almost exactly on President Reagan’s at the same time in the election cycle. Of course, this won’t do the President any good if the trend doesn’t continue. Leading indicators in the US are somewhat on the positive side, though not strong enough for Democrats to feel overly comfortable. (5)

A comparison of US personal consumption shows a strong and leading correlation with the unemployment data and the re-election outcomes we looked at earlier. Successful incumbents all had strong growth in personal consumption in the year before the election. Why is this important? Because it takes time for personal consumption to generate business profits, clear out inventories, and send a signal to produce more, which then leads to new jobs. It takes about 6 to 12 months across the economy – some sectors respond faster than others.

President HW Bush had strong growth in consumption in the year of the election, but it was too late to benefit him. Unemployment didn’t start to fall until President Clinton was already sworn in. Meanwhile, President Reagan had a surge in consumption in 1983 that was already generating jobs and confidence in 1984, allowing him to take the credit and win the election.

President Obama is  in a grey area: consumption is not as strong as during the run-up to President Reagan’s successful bid, though it is in the ballpark of Presidents Clinton and W Bush. It remains to be seen whether this is sufficient. A strong end-of-year holiday season would be a powerful signal to businesses and perhaps the last chance to have a real influence on the unemployment outlook for next November.

The implications are clear enough to Republican law-makers. It explains why they are doing everything possible to keep the  jobless rate high: the laser focus on austerity, on cutting government spending and not investing in growth, is a tried-and-true method for slowing or derailing the recovery. Republicans have suddenly become europhiles, as the most recent measures agreed upon during the December 9th Brussels summit are sure to intensify the looming European recession. This can only hurt the US economy – just in time for Republican prospects.

So while President Obama has reasons for hope, he has no room to manuever. He must do everything possible, and impossible, to put Americans back to work in the run-up to November: or at least make it painfully obvious that it is the GOP who stands in the way of better times.

Notes:

(1) http://www.marketwatch.com/story/jobless-claims-fall-to-lowest-level-since-2008-2011-12-15
(2) Bureau of Labor Statistics, http://www.bls.gov/news.release/empsit.nr0.htm
(3) Bureau of Labor Statistics – Seasonally adjusted Unemployment percentage (series LNS14000000)
(4) Bureau of Labor Statistics – Seasonally adjusted Unemployment percentage (series LNS14000000)
(5) Bureau of Economic Analysis – Percent Change From Preceding Period in Real Gross Domestic Product (Table 1.1.1.)

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