As Jobs Summit Approaches, Obama Faces Limited Options

Two years in, with unemployment at 10-percent following a massive decline in the nation's GDP, Reaganomics was widely derided. Dezenhall remembers the President’s limo getting pelted with rocks one day.

Not too soon after that, “all the talk about the one-time presidency evaporated,” he says and “it was a direct consequence not of anything strategic but that the stock market rallied and the recession ended.”

Around that time, the economy had shed two and a half million jobs under Reagan’s watch. Two months before the President’s reelection, payrolls were 4.3 million higher than when he took office. The jobless rate was down to 7.2 percent.

To a much lesser extent, both Clinton and George W Bush also survived economic downturns early in their terms. Bush, in particular, survived a jobless recovery that lasted well into his first time. From February 2001 to June 2003, the economy shed almost 4 million jobs. By the re-election victory of November 2002, all but 300,000 had been replaced.

This time around, payrolls are down 3.5 million since January of 2009, versus 3 million during the Jan.-Dec. 2008 period. During the same periods, the jobless rate went from 7.6 percent to 10.2 percent, and 4.9 percent to 7.2 percent, respectively.

Many economists expect a similar pattern for Obama’s first term. The difference between the technical end of a recession and the beginning of a recovery—particularly in the form of job creation—can be subtle, sometimes almost indistinguishable.

“We're behind schedule in putting jobs back on,” says economist Robert Brusca of FAO Economics, citing the deep nature of the most recent recession. “I still think we’re going to see strong job recovery when its comes.”

The consensus is for job growth to begin sometime in the first quarter of 2009, with marked acceleration a few months after that. The strongest job growth typically come 8-12 months into the recovery.

Brusca says a recent analysis shows jobs tend to be replaced at the same rate and in the same amount of time as they were lost. So, if 6.5-7.0 million jobs are lost during the Jan. 2008-2009 peak-to-trough period, then roughly the same amount will be created during the 2011-2012 period.

That’s a positive environment for Obama to win re-election. The wildcard may be the jobless rate.

“Unlike jobs, which tend to be V-shaped, the unemployment rates moves like molasses in January, even when you have strong job growth,” explains Brusca.

That dynamic precluded a a second term for George H.W. Bush in 1992. Even though the recession was over and the economy has been creating jobs for months, by election time the jobless rate had improved very little from its post recession high of 7.8 percent in June 1992.

“I think people have been consistently overly optimistic [about unemployment]," says Baker, who is among those who expect the rate to top out near 11 percent, sometime in the late winter or early spring.

“Come 2012, people are going to care about the unemployment rate," he says. "If he [Obama] can get that down to a level people think is acceptable, then the chance of re-election is good.”

The same can't be said about Democrats in the mid-term election next November, at which time many economists expect the jobless rate to still be around 10-percent.

By then, the message will have been clear. “You guys had your shot, now I need to be Mr. fiscally responsible,” is how Frenzel puts it.