President Obama heads into the final weeks of his re-election campaign getting little support from an economy that is growing weakly and remains threatened by political turmoil at home and economic distress overseas.
Job growth remains subpar, averaging little more than 100,000 a month, in a stubbornly slow-growth mode that will not suffice to put millions of people idled by the recession back to work.
Consumer spending, the economy’s main engine, is growing only by fits and starts, while once-robust export sales that helped to jump-start the recovery now are on the wane thanks to a renewed recession in Europe and sharp slowdown in China and other emerging markets.
Among the bright spots in the economy, the stock market has soared back to four-year highs, egged on by overflowing profits at U.S. corporations and record-low interest rates engineered by the Federal Reserve. Yet the markets remain vulnerable to bad news from Europe and worries about the looming political fight over taxes and spending in the U.S. at the end of the year.
Auto sales also have shown surprising strength, given the dour mood of consumers. And in perhaps the most promising sign for the future, the housing market has eked out solid gains in sales and construction this year after five years of deep depression and stress. Housing had been the one major missing ingredient previously in the three-year recovery.
Housing rebound
But even with the belated revival of housing, which makes for a more well-rounded recovery, analysts say more convincing growth in jobs and incomes will be needed to preserve and continue the housing gains and put life into the broader recovery. And without such a pickup, the economy will continue to overshadow Mr. Obama’s prospects.
“Times are tough,” said Julia Muir, analyst at the Peterson Institute on International Economics. “It’s not news that President Obama faces an uphill battle on economic conditions.”
Since the housing collapse played such a big role in the Great Recession, Ms. Muir developed a “misery index” that takes into account the one-third drop in home prices since 2006 as well as elevated level of unemployment. The index is lower than it was during the 2007-2009 recession, but higher than its level before the recession, reflecting the dicey odds for the president.
A snapshot of the fragile and frustratingly slow economic backdrop was captured in the August jobs report that came out Friday, which showed businesses created another 96,000 jobs as unemployment declined to 8.1 percent from 8.3 percent in July. Unemployment has fallen from a high of 10.1 percent in 2010.
Work force dropouts
While the reduction in unemployment last month looked promising for Mr. Obama, it was mostly due to a whopping 368,000 people dropping out of the labor force, with some retiring, others going back to school, and many others simply discouraged from not being able to find jobs. Wage gains fell to a new post-recession low of 1.7 percent over the past year.
That led most analysts to declare the report was too weak to provide much comfort to the White House. In fact, it was iffy enough that Wall Street is betting it will prompt the Federal Reserve to take the highly unusual step this week of launching a politically controversial program for spurring the economy despite being in the midst of a close-fought presidential contest.
“The job report was disheartening to America, and President Obama has a bigger mountain to climb before the election” as a result, said Song Won Sohn, economics professor at California State University Channel Islands.
Still, he is optimistic that the stronger side of the economy will prevail in coming months. “Consumers have not shut their wallets,” and with rising jobs and incomes and lower debts, they are increasingly willing to spend on the latest “hot” items, he said.
“The pent-up demand for cars and housing is a potential source of strength for the economy,” he said. “In some cases, job gains are feeding upon itself. The bounce in retail sales and housing are creating service jobs through the multiplier effect. Service employment rose 119,000.”
Blaming Bush
Mr. Obama is addressing the economic sluggishness by arguing that the economic “mess” left to him by the George W. Bush administration following the financial crisis of 2008 was so great that in four years the economy has only had time to progress part way down the path of recovery. The housing market and other key sectors will take more time to mend and get over the once-in-a-century trauma they went through, he says, asking voters to give him more time to “finish the job.”
“You elected me to tell you the truth. And the truth is, it will take more than a few years for us to solve challenges that have built up over decades,” Mr. Obama said in his speech Thursday night accepting the Democratic nomination for a second term.
Andrew B. Busch, a public policy strategist at BMO Capital Markets, said the “finish the job” argument “will be extremely potent” with voters if the recovery stays intact and gathers steam in the weeks leading up to the election.
“It is the strongest case for re-electing Obama,” said Mr. Busch, who personally favors Republican candidates.
Lance Roberts, CEO of StreetTalk Advisors LLC, said the 11 percent gain in the stock market this year is a “silver lining in the gray cloud that is the economy” for Mr. Obama.
“If you have invested in the markets, you probably made some money” during Mr. Obama’s term, he said, and that bolsters consumer confidence, although he added that the markets remain vulnerable to reversals that could hurt the president before the election.
“Employment is the biggest concern for the current administration, as companies are sitting on cash and not hiring,” he said. But Mitt Romney “still has to prove he is the right leader to create jobs.”
• Patrice Hill can be reached at phill@washingtontimes.com.
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