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Double Dose of Good Timing Aiding Obama's Re-Election Chances

Friday, 9 Mar 2012 | 10:22 AM ET

With eight months until voters hit the polls, the re-election of President Obama looks more likely than ever, thanks to the escalating recovery of the stock market and economy, say analysts, and may soon make the bad times of 2009 and 2010 the distant past for many voters.

President Barack Obama addressing a town hall in Elyria, OH.
cnbc.com
President Barack Obama addressing a town hall in Elyria, OH.

"The president's position has improved greatly due to the performance of the economy and the stock market," says Bill Frenzel, a 10-term, moderate GOP congressman from Minnesota, now with the Brookings Institution.

Similar circumstances helped Presidents Ronald Reagan and George W. Bush win re-election, but Obama may have an additional edge in that his Oval Office predecessors had recessions begin on their watch.

"From the beginning the odds were in his favor," says Robert Brusca, chief economist at FAO Economics. "The long recession started just before his term, and whatever happened in the first six months certainly had little of anything to do with his administration. The cards are now stacking up really nice for him."

The economy, though hardly hearty, grew at an annual rate of 3.0 percent in the fourth quarter of 2011, and is looking stronger on a broad scale than at any other time since Obama's election, say economists; and the stock market's long bull run, which petered out in the second half of 2011, was back on track in the first two months of the year.

The February jobs report issued Friday capped a week of encouraging economic data.

Many expect the trend to continue through the November election.

"The unemployment rate will be lower, employment will be back, manufacturing employment looks like its expanding for the first time in decades," says Lawrence White, a former White House economist and regulator who served under Democrats and Republicans and now a professor at NYU's Stern School of Business.

Of course, many analysts are quick to warn that Obama's momentum could be slowed or derailed by various events, such as Iran blocking the Straight of Hormuz, another eruption in the E.U. debt crisis or even $5 a gallon gasoline.

A closer look at the progression of the stock market, labor market and overall economy shows Obama will have ample positive comparisons to make without stretching the truth in the slightest.

Jobs, in particular, can be an Achilles' heel for incumbents, but like Bush in 2004, the Obama administration is overcoming the perception of owning a jobless recovery, thanks partly to what appears to be a structural change in the economic cycle.

"We’ve had job growth occurring well into the recovery in the last three recoveries," says Brusca, who adds that the bulk of job creation has shifted recently from manufacturing to services.

Jobs, Jobs, Jobs

Payrolls have increased 12-straight months for a total of 1.7 million jobs, and at 132,166,000 are now just 1.5 million below the February 2009 level of 133,652,000, Obama's first full month in office, according to Bureau of Labor Statistics data. The data wasreleased before Friday's unemployment report, which showed that 227,000 jobs were added in February while the unemployment rate held at 8.3 percent.

That's essentially how the labor market played out for Bush in the run-up to the November 2004 election.

What's more, if job creation continues at the 12-month average of some 142,000, more than 1.1 million jobs will be added by Election Day.

"He’s lucky that the recovery has taken so long, coming now rather than a year ago," says White.

"If we create 200,000 month, which is plausible, that puts him in a good position," says Dean Baker, co-director of the Center for Economic And Policy Analysis.

Baker's number may sound hypothetical, but many private-sector economists, including Brusca, expect average monthly job growth of that or more during the rest of 2012.

It's important too because the extra 400,000 jobs would essentially put payrolls where they were in Obama's early days.

"He will get credit for things going in the right direction," adds Baker.

The same dynamic and comparison appear to be at work with the unemployment rate.

Jobless Rate Math

Though the jobless rate remains high, its peak could be three years old by Election Day. The rate has not risen in the past 13 months.

During Bush's first term, though the jobless rate was much lower — it peaked at 6.3 per cent in June 2003 — it bounced between 5.4 and 5.8 in the ten months of 2004 leading up to the general election.

For Obama, however, steady modest, even minimal monthly improvement from the current 8.3- percent rate would take it to close to the 7.3-percent rate that existed when Reagan was re-elected in 1988 — the highest ever for an incumbent who won re-election — and roughly three full percentage points lower than its highest level of 10.2 percent.

"The rate of change makes a huge difference," says Baker.

Achieving a huge decline in the jobless, however, will require job growth uncommon in the past decade.

The Fed Factor

According to a new Federal Reserve Bank of Atlanta jobs calculator, lowering the jobless rate to 7.3 percent would require average monthly job creation of almost 280,000 in the eight months left before the election; the more likely 200,000 monthly average would reduce the rate to 7.7 percent.

The Fed Factor

Though economists say the comparisons with Bush are generally more apt, Obama and Reagan have one key element in common: a high profile, pro-active Federal Reserve chairman, whose policies have been blamed for some of the economy's failings.

US President Barack Obama speaks alongside Chairman of the Federal Reserve Ben Bernanke during the Economic Daily Briefing.
Saul Loeb | AFP | Getty Images
US President Barack Obama speaks alongside Chairman of the Federal Reserve Ben Bernanke during the Economic Daily Briefing.

"[Paul] Volcker was very unpopular," says White of the famous inflation-fighting Fed chief, who even Reagan criticized. "Mr. Bernanke is taking a lot of the heat: Why hasn't the economy done better? How dare you turn on the spigot?"

"He’s given Obama a good kind of defense," adds Brookings' Frenzel. "Bernanke has a lot of critics."

They happen to include a couple of GOP presidential candidates, which has also benefited Obama, according to some analysts.

For some, Obama's brightening prospects, as well as his approval ratings, also happen to coincide with a sputtering GOP campaign strategy on the economy.

"They have offered no blueprint for making a better recovery; their economic proposals aren't terribly important to the average American voter," says Frenzel. "Obama can say things are good. He can justifiably say that. As long as he keeps doing that, and adds that things could be better, he’s OK."

That caveat is important because all of the economists interviewed for this story are in some way critical of Obama's handling of the economy.

Stocks Happy

The last driver, and perhaps the most ironic one, is the recovery in the stock market from its shocking lows of March 2009, just months after Obama took office.

Obama, unlike no other president in modern time, has been seen as unsympathetic, if not hostile, toward Wall Street and the fortunes of the stock market.

But again, like Reagan and Bush, perhaps even more so, the stock market's steady rebound has tempered voter antipathy, which is reflected in rising consumer confidence.

"The market has gone up sharply," says FAO's Brusca. "That’s in his favor."

Just as the market stormed back from its bear-market low in October 2002, it has returned to its pre-crisis level or better. Moreover, the first two months of this year were the best in some three decades.

"When the stock market is up, everybody begins feels a little better," says Frenzel. "It filters down pretty quickly. Joe Six Pack probably doesn't think about his 401(k) very often, but he knows it's there for him."

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