On first glance, the revision of U.S. gross domestic product in the first quarter to a contraction of 0.7 percent should provide a great talking point to Republicans looking to kick Democrats out of the White House in 2016 and prevent a Hillary Clinton presidency.
But the numbers are not as bad as they look and the economy is still likely to work in Clinton's favor next year.
The biggest drag on the first-quarter number came from trade, which subtracted 1.9 percent off the headline, partly the result of the strong dollar and partly the result of the West Coast port labor dispute that slowed exports. In addition, the harsh winter also likely muted consumer spending in ways that should be reversed in the second quarter, especially with continued low gas prices during the summer vacation months.
The economy has now shrunk three times during the current expansion, each time in the first quarter. Economists increasingly wonder whether the federal government is no longer able to adequately account for seasonality in the first-quarter numbers.
No one is suggesting the economy is rocketing ahead and the dollar drag on exports is not likely to ease, especially with the Federal Reserve heading into a tightening cycle later this year or early next. But other data on gross domestic income, jobless claims and hiring all suggest growth should move back closer to 2 percent later this year. Wage growth could follow.
And that means Republicans cannot really leap on the latest bad numbers to say the Obama economy is a total failure and that Clinton should not be allowed to continue to pursue the same kind of policies embraced by the current administration.
In fact, when Clinton reaches the general election—assuming no cataclysm keeps her from the Democratic nomination—the unemployment rate is likely to be somewhere near 5 percent or even lower, a very friendly environment for the incumbent party.
James Pethokoukis of the conservative American Enterprise Institute tweeted on Friday:
It's a very good question.
The unemployment rate is far from a perfect predictor of presidential election outcomes but a rate below 7.4 percent—especially if it is trending in the right direction—tends to favor the incumbent White House party.
Republicans have to hope they can turn Hillary Clinton into the Al Gore of 2016. Gore ran to succeed Bill Clinton in a strong economy with 3.9 percent unemployment. Democrats of course will argue that Gore actually won and had the election taken from him by the Supreme Court halting a recount in Florida. They would also argue that Gore would have done even better if he had more closely tied himself to the Clinton economy and embraced the outgoing president.
Still, a low and falling jobless rate does not guarantee a Hillary Clinton presidency. But couple it with her built-in electoral college advantage, which I wrote about here, and Clinton goes into the race with a significant head start.
The likely direction of the economy heading into 2016 means the GOP field will have to come up with robust and detailed plans to sell to voters on how they could make the nation's growth rate even faster while boosting stagnant wages. Right now, the candidates are getting tied up in knots over what they would have done in Iraq, what they would do about ISIS, and how conservative they are on immigration and other issues.
Former Florida Gov. Jeb Bush has promised a growth rate of 4 percent or more but has not yet laid out plans for how to achieve that pace. Bush, Florida Sen. Marco Rubio and Wisconsin Gov. Scott Walker all remain the mostly likely to get the GOP nomination. But another recent entrant into the field has begun to make an interesting economic case.
Former Pennsylvania Sen. Rick Santorum announced his candidacy with a populist approach, holding up a chunk of coal to emphasize his blue-collar roots and declaring that "working families don't need another president tied to big government or big money." It's still not clear what Santorum's prescription will be to address what he called a "hollowed out" middle class, but his message could prove alluring to voters frustrated by the current sluggish economy.
And, like Walker and Rubio, he would present a sharp contrast to Clinton, the wealthiest candidate in the 2016 race who amassed a fortune on the speaking and book circuit over the last decade.
Santorum caught fire last time around, taking Iowa and 10 other states before bowing out to Mitt Romney. He may not even qualify for the debates this time but other Republicans should pay attention to his approach. Because when it comes to the general election, a platform of just more tax cuts and less regulation is not likely to be enough to beat a Democrat running with a low jobless rate and an economy that is at least puttering along at a decent rate.