State GDPs are evidence that Republicans may retake the Senate
The recent jobs and GDP numbers released by the government were a broad disappointment, and plenty of analysts have discussed the implications of the data. Yet, most of the analysis has focused on two dimensions – whether it’s now more or less likely that Congress or the Fed will act on either the fiscal or monetary fronts to try to boost the economic recovery.
The consensus is that the odds are marginally higher now that the Fed will signal something stimulative at its next meeting on June 19-20, while Congress is still hopelessly deadlocked, and the economy will have to show significantly more weakness for this dynamic to change.
However, there is a third dimension happening at the state level. The state-by-state GDP numbers out this week suggest that the probability that Republicans will take the Senate is rising. The weak economic growth numbers in some battleground states imply that Republicans could pick up several key U.S. Senate seats and probably take back the majority for the first time since 2006.
The Bureau of Economic Analysis reported yesterday that the U.S. real GDP by state grew 1.5 percent in 2011 after a 3.1 percent increase in 2010.
First, some quick facts about the current Senate composition. Democrats have a 53-47 majority (which includes two “independents” who caucus with the Democrats).
A flip in control of the Senate has the potential to dramatically alter the framework for the policy negotiations around the looming federal deficit and the end-of-year “fiscal cliff”. Since Republicans are expected to hold their majority in the House, a full Republican Congress would be more likely to extend the current tax rates and maintain significant spending cuts while blocking President Obama’s plans to increase taxes (should he win in November), including those on capital and savings.
There are 33 Senate seats up for election this November. Democrats hold 23 of them, and 7 are “open,” meaning that the incumbent isn’t running for re-election. By comparison, Republicans have only 3 open seats (Maine, Texas and Arizona) among the 10 that will be defended by incumbents.
If Republicans: 1) hold Texas, Arizona and Massachusetts; 2) lose Maine to an independent who caucuses with the Democrats; and 3) snatch all six of the remaining Senate seats (Virginia, Florida, North Dakota, Nebraska, Montana and Missouri), then Republicans would have a 53-47 majority.
So, how did each of these states do in terms of the percent change in real GDP in 2011? Here is how the 2011 numbers compare with 2009 and 2010 by region:
The answer addresses a question that many prospective voters will be asking themselves come November – whether their local economy is improving or not.
The new 2011 GDP stats in these three states probably won’t move the forecast needle – with Texas and Arizona staying Republican and Maine flipping to an independent caucusing with Democrats:
Texas: Highest quintile with 3.3 percent GDP growth in 2011.
Arizona: Second-lowest quintile with 1.5 percent.
Maine: Lowest quintile with -0.4 percent.
How about the six states where Democrats might lose or are most vulnerable:
Virginia: Second-lowest quintile with 0.5 percent growth.
Florida: Second-lowest quintile with 0.5 percent growth.
North Dakota: Highest quintile with 7.6 percent growth. (A recent boom in the mining sector contributed greatly to this figure.)
Nebraska: Lowest quintile with 0.1 percent growth.
Montana: Lowest quintile with zero growth.
Missouri: Lowest quintile with zero growth.
The weak state-by-state GDP numbers suggest that Senate candidates, particularly Democrats across the country (including President Obama – who will also be battling in these states), are more likely to be on the defensive regarding the economy and the underwhelming recovery.
It is important that these convictions about state growth be tempered. It’s certainly possible that if the economy improves on a national basis or the president benefits from a second wave of youth voters in November, akin to that in 2008, the impact will end up trickling down the ballot to the Senate contests.
But it’s difficult to be optimistic about the broader backdrop this summer, as the EU unravels and investment is expected to slow down in the second half of the year as the fiscal cliff approaches. The prospect for a significant improvement in the economy before November appears to be rather low at this point.