When Larry Summers, the President's Director of the National Economic Council, convenes the Obama administration's top economic officials this afternoon, they'll have no shortage of issues on the agenda: job losses, tepid growth, skyrocketing deficits, a weakening dollar, and tax increases just to name a few.
The headline data from last week's GDP report must have warmed hearts in the White House -- especially when equity markets rallied. But a closer look at the data soured the outlook for a lot of economists. Even with today's trio of stronger-than-expected data on manufacturing, construction and pending home sales, there are significant economic questions about the pace and durability of growth. Equally important for the Obama White House, there and very real political concerns regarding its own performance in dealing with the economy.
Most Americans today are not feeling good about their own finances, about the overall direction of the economy, and about the leadership coming from Washington in dealing with it. They seem to understand that much of the growth reported -- as tepid as it was for a post-trough bounceback quarter -- is being fueled by caffeine and sugar from Washington. They're becoming more concerned about the long-term impact of policies in Washington: What happens when the sugar and caffeine go away? How will we pay for it? Why, after this huge spending program, is the unemployment rate expected to continue rising?
Forget the arcane economic and market data we pore over every day. The metrics many Americans are comfortable with won't show up clearly in a GDP report. A 10% unemployment rate -- one in ten of your friends or family out of work -- is simply a very scary number. A federal deficit measured in the trillions of dollars is likewise very scary. And those numbers will not be going away any time soon.
The Obama White House so far hasn't given Americans good reason to be optimistic about what the future looks like on either jobs or deficits, and in the current political environment, those issues will be critical measuring sticks for the White House and the Democratic leadership in Congress. Larry Summers, Tim Geithner and Christine Romer are fully aware that improvements on jobs and deficit numbers are a long way off. Their real focus today will be to figure out how to keep sour feelings and weak data from spoiling President Obama's policy agenda.
What must have been unthinkable for the White House when the year began, but is becoming more likely now, is that the President's two most important domestic policy efforts -- climate change and health care -- are now in jeopardy of foundering because of the difficult political-economic environment.
Odds are still with the White House that some kind of health care legislation will be passed -- the alternative would be a disaster for President Obama and Democrats; and climate change appears destined to be put off until next year. But those odds become a bit longer the less evidence is available that the stimulus will have a lasting impact on jobs, and the more the real costs of stimulus spending become clear.
Tony Fratto is a CNBC on-air contributor and most recently served as Deputy Assistant to the President and Deputy Press Secretary for the Bush Administration.