The jobs report was the latest economic indicator suggesting the nation's recovery from the worst recession since the 1930s has hit another soft patch with the presidential election 18 months away.
President Barack Obama is all smiles in this recent photo, but a lack-luster jobs report could foreshadow troubled times ahead as the 2012 presidential election draws nearer.By Mike Dorning
Bloomberg News
WASHINGTON – While the field of Republican presidential candidates remains unformed, President Barack Obama is facing a rising threat from potentially his toughest re-election opponent: the American economy.
Job growth slowed to 54,000 in May, down from 232,000 in April and the smallest gain in eight months, the Labor Department reported Friday. The unemployment rate rose to 9.1 percent, the highest level this year.
“If job creation doesn’t continue on the pace it’s been on in recent months, that’s going to be an enormous hurdle for the president,” said Tad Devine, a Democratic strategist who worked for the party’s 2000 and 2004 presidential nominees.
The jobs report was the latest economic indicator suggesting the nation’s recovery from the worst recession since the 1930s has hit another soft patch with the presidential election 18 months away.
U.S. consumer spending slowed in the first quarter of the year and confidence levels have since fallen. Manufacturing growth, a consistent contributor to the recovery, weakened across the globe in May. The S&P/Case-Shiller Index released May 31 showed U.S. home prices in March dropped to the lowest level since 2003, further eroding home equity available to Americans.
“It highlights the tenuous nature of things,” said Mark Zandi, chief economist for Moody’s Analytics in West Chester, Pa. “Everybody has been through so much it really doesn’t take much to push people over the proverbial edge.”
Over the past two weeks, private economists at firms such as J.P. Morgan, Goldman Sachs and Macroeconomic Advisers cut their forecasts for economic growth in the current quarter. Zandi, who began the 2nd quarter forecasting a 3.7 percent growth rate for the period, has trimmed his estimate to 2.2 percent.
The 1.8 percent growth rate in the first quarter, a decline from 3.1 percent the prior quarter, also came in below forecasters’ estimates.
Obama hasn’t suffered in the polls so far. Gallup’s daily tracking poll showed him with an average 53 percent job approval May 29 through June 1, tied for the highest level of the year. It has climbed from 41 percent in mid-April, following the killing of Osama bin Laden and an easing of gasoline prices.
Potential Republican candidates for the White House are making the economy an issue. Former Massachusetts Gov.Mitt Romney, who formally announced his candidacy for the Republican nomination Thursday, said Friday in New Hampshire that the number of people out of work is “simply inexcusable.”
“The Obama policies have failed America,” he said.
Investor concern over the economy has sent stocks down, extending the longest streak of weekly losses for the Dow Jones Industrial Average since 2004, while Treasuries rose.
The current ebb parallels the movement of the U.S. economy last year, when payrolls grew by an average of more than 300,000 from March through May only to slow down and start shedding jobs in the wake of the European debt crisis. Growth picked up again in October. Zandi is among the forecasters who say the recovery likely will strengthen again in the second half of 2011.
Austan Goolsbee, chairman of the White House Council of Economic Advisers, said Friday’s jobs report represents a “little bump” in the road and that broader trends are “substantially more positive” than they were when Obama took office.
“We should never read too much in to any one month’s report,” Goolsbee said in an interview on Bloomberg Television.
Slowing growth would at least temporarily cut into the pace of employment gains in an economy that still has a long way to go in digging out from the recession. Only 1.8 million of the more than 8.7 million lost since January 2008 have been regained.
Even before the recent series of negative indicators, forecasters predicted Obama would face a challenging economic climate for re-election. The unemployment rate in the final quarter of 2012 was expected to be 7.9 percent, according to the median forecast of economists in a Bloomberg survey taken May 2 through 12. Zandi said he now expects the Election Day unemployment rate to be “north of 8 percent.”
Ronald Reagan, who faced an unemployment rate of 7.2 percent on Election Day in 1984, was the only U.S. president to win re-election with a jobless rate above 6 percent since World War II.
A soft recovery also increases the challenge to Obama’s message that the nation is on a positive trajectory. The White House has distilled the theme into the catchphrase “Win the Future.”
Devine said the credibility of Obama’s view of the path forward – more than a specific jobless rate – will be the most important ingredient in his re-election campaign.
“Voters will make choices on how they feel the candidate will affect their future,” Devine said. “I don’t think there’s a magic number for unemployment.”
Reagan won 49 states with an unemployment rate that was “really high at the time” because “people believed he had the nation headed in the right direction,” he said.
The public right now is pessimistic. The proportion of Americans who believe they will be better off in 10 years dropped from 72 percent in 2009 to 54 percent this year, according to a survey by the Pew Economic Mobility Project.
Fewer than half of Americans now believe their children will enjoy a higher standard of living, a centerpiece of the traditional American Dream, the March poll found. That’s down from 62 percent who thought so in 2009.
“The danger is that if we continue to take two steps forward, two steps back, people are going to continue to suffer a high level of economic anxiety,” said Bill Carrick, a Democratic strategist. “There’s no way that can be good politically for the president.”