Obama’s re-elec­tion for­tunes ride on ris­ing econ­omy

Job­less rate down, stock mar­kets up

The Washington Times Daily - - Front Page - BY PA­TRICE HILL

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 quar­ter­mil­lion 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-tobe-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 re­elec­tion 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 re­elec­tion quest, the ori­gin is not likely to have been in Europe.”

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