In recent weeks, President Barack Obama has been busy reconnecting with young voters, reminding the American people of the raid he ordered last year which ended in the death of Osama bin Laden, and making his support for gay marriage official. At the same time, Mitt Romney has been trying to unify and energize Republicans after a divisive primary season. But these are just momentary distractions, an effort by the two contenders for the White House to solidify their base and raise funds before they dive into the long chase for independent voters that will drive the remainder of this campaign season. The single most important issue on everybody’s mind is, without a doubt, the state of the US economy, barring of course a major unforeseen national security shock, another 9/11 for example.
President Obama acknowledged as much in the interview in which he announced that he is now fully behind same-sex marriage. “I’m not gonna be spending most of my time talking about this,” he said, “because, frankly, my job as president right now, my biggest priority is to make sure that we’re growing the economy.” As he strives to win reelection, Obama will have to keep a close eye on domestic factors like unemployment numbers and on developments in the sovereign debt crisis in the eurozone, two matters that might very well seal his fate as president.
The link between conditions in the labor market and an incumbent president’s reelection chances is particularly strong. Franklin D. Roosevelt was the last president to win a second term in the face of an unemployment rate above 7.2%. As of April this year, the figure stood at 8.1%.
It is worth noting that longer-term unemployment trends have a larger effect on voting behavior than a single jobless number. Voters take into account whether economic conditions are improving or worsening relative to where they were, more than just looking at only one specific moment in time.
In this light, things look more promising for President Obama. After peaking at 10% in the fourth quarter of 2009 and then hovering above or around 9% until recently, the number of unemployed Americans suddenly dropped at the beginning of this year, on the tail of a faster-than-expected GDP growth in the last quarter of 2011 (3%.)
However, the jobless rate is still well above what would normally be considered acceptable and Federal Reserve Chairman Ben Bernanke has said that the Federal Open Market Committee does not “anticipate further substantial declines” before Election Day.
“American voters see the economy fairly realistically, recognizing that we have weathered the worst of it but disappointed that it is not coming back faster.” says Michael Ettlinger, Vice President for Economic Policy at the Center for American Progress in Washington, D.C. “The fact that President Obama took over an economy that was losing almost a million jobs per month and now is consistently gaining jobs works in his favor, but the economy is short of where he, and the American people, want it to be.”
Unfortunately for the President, the GOP-controlled House of Representatives and a highly partisan political atmosphere in Washington have made it impossible for him to take further action to stimulate the economy beyond the original $831 billion stimulus package (the American Recovery and Reinvestment Act of 2009). A limping real estate market and a still unresolved foreclosure crisis also work against him. “Without further government intervention, this recovery is going to have its ups and downs,” says Ettlinger. “And until the country works through its household debt -particularly debt owed on homes in excess of their value – it will not be as rapid as one would hope for coming out of such a deep recession.”
President Obama must also watch out for what some have already dubbed the “curse of the first quarter”. At the beginning of both 2010 and 2011, the economy was adding enough jobs that everybody thought the US labor market was finally on its way out of the tunnel. Then, things slowed down again and hopes were disappointed. Initial data from 2012 suggest we might be faced yet again with the same scenario. The economy added 252,000 jobs per month between December and February, then 154,000 in March and a meager 115,000 in April.
“I would say that only if the US economy stalls again this year like it did in 2010 and 2011, is Obama in really serious risk of losing the election,” says Jacob Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington, D.C. “This is, of course, where the crisis in the euro area comes in.”
According to Kirkegaard, if the situation in the eurozone were to deteriorate further, especially if a new anti-EU bailout government in Greece were to decide to leave the currency union, this would affect financial markets worldwide. Given the anemic recovery in the US, investor and consumer confidence would drop there as well, a combination of factors that would put even more pressure on President Obama’s reelection campaign.
“However, while I do not foresee any noteworthy improvement in the euro area before November, I also do not think that the situation will deteriorate much more than what is already priced into the markets,” adds Kirkegaard. “Hence, while the euro area will not provide Obama with any ‘economic assistance’ for his reelection, it will also not make his chances a lot worse.”
Overall, it is unlikely that President Obama will be able to win reelection on the basis of his running of the economy, while he might very well lose in November if Republicans successfully turn the vote into a referendum on the recovery. If the President does manage to grab a second term in the White House, it will more likely be due to the weaknesses of his opponent Mitt Romney, seen by many even within the Republican Party as cold and calculating, out-of-touch with the average American and too willing to compromise his values for immediate electoral gains.