by Rick McGahey, SCEPA Faculty Fellow
In a close election, as this one is likely to be, every factor counts, and numbers like today's mean Obama has almost no margin for error.
The economy is a key to the election. Although analysts like Nate Silver are skeptical about predicting election results based on economic data, even he concludes that economic factors account for around 40 percent of election results. (One of the earliest predictive models based on economic factors was developed by Ray Fair, and you can play around with different election scenarios based on that model here.)
After last month's weak employment report, where job creation fell well below 200,000, many analysts (including me) were waiting to see if that was a one-month blip or whether employment and the economy were weakening. We had been on a relatively strong trend—between December and February, job growth averaged 252,000 per month, but fell to 154,000 in March.
This morning's April employment report presents sobering news that the trend is weakening—total nonfarm jobs only grew by 115,000, below the consensus forecast of 160,000, with slow growth or actual declines across all industries. Unlike earlier months, when declines in government employment were a cause of overall weakness, government employment stayed relatively flat. And the unemployment rate stayed roughly constant at 8.1 percent.
Coupled with last week's report that first quarter GDP slowed to 2.2 percent from its 3.0 percent rate in the last quarter of 2011, today's report suggests the U.S. recovery is running out of steam. The effects of the too-small stimulus package have just about worked their way through the economy, and there isn't much on the horizon that will stimulate growth.
On the government side, state and local governments continue to cut budgets and hold down spending and job creation. Goldman Sachs released a study in January estimating that the "fiscal drag" from government reductions in spending would take around 0.5 percentage points off of GDP this year. The Federal Reserve is signaling that they do not anticipate new policy interventions, with some regional Fed Presidents actually calling for interest rate increases. And election pressures coming from Republican calls in Congress to make further cuts in spending means that the Obama Administration will have to do everything it can simply to hold the line.
Today’s weak unemployment report will give heart to Republicans, and should cause substantial concerns among Obama supporters.