Team Obama would surely love to run a Reaganesque, “Morning in America” reelection campaign, cruising to victory by taking credit for a dynamic economic recovery. But for that scenario to play out — or anything close to it — the unemployment rate would have to drop a whole lot. (The president’s political advisers will be closely watching the January jobs report.) In a new research note, analyst Matt McDonald of Hamilton Place Strategies, a policy advisory and strategic communications consultancy in Washington, makes the following points:
1) Usually in presidential election years, the magic number to watch is 270. But for 2012, the magic number may actually be 215. That is how many thousands of jobs the economy has to create every month for the unemployment rate to drop below 8 percent by Election Day 2012.
2) Since 1960, the unemployment rate has been above 7 percent during four elections: 1976,1980, 1984 and 1992. In three of these 4 elections, the incumbent party lost. Only in 1984 did Reagan win with 7.2 percent unemployment, which was in the context of a 1.3 percentage point drop in unemployment during the year prior to the election.
3) For President Obama, with a current unemployment rate of 9.4 percent, an unemployment rate below 7 percent is hard to envision by November 2012. However over the coming 2 years, he would see an improved political position from a significant drop in the unemployment rate. Current economic forecasting projects a fourth quarter 2012 unemployment rate of approximately 8 percent (CEA: 7.7 percent; CBO: 8.2 percent; Blue Chip: 8.4 percent). If the unemployment rate can break this 8 percent level, President Obama can credibly argue that he is making progress on jobs, even though the unemployment rate will still be historically high.
4) If we assume a straight-line projection of job growth and further assume 120,000 new entrants to the job market every month, the economy would need to create 215,000 jobs per month every month between now and November 2012 to get the unemployment rate below 8 percent. Every month we are above 215,000 new jobs, it gets a little easier to reach that 8 percent goal and every month we are below 215,000, it gets a little harder. This is the benchmark that interested parties should be watching tomorrow as the January jobs numbers are released.
McDonald does note a big complicating factor. Discouraged workers could rejoin the workforce as prospects improve. “This would have the effect of increasing the number of jobs needed each month to reduce the unemployment rate,” he notes.
Indeed, if the workforce had not shrunk so much during the downturn, the unemployment rate right now would be higher than at any point since the Great Depression. On the other hand, some economic observers, including those on the Federal Reserve, think the workforce may stay small. The longer people stay out of work, the longer they tend to stay on the sidelines since employers become biased against them. In addition, it’s unlikely that unemployed home construction workers or mortgage lenders will find their industries bouncing back anytime soon.
But whether Obama joins the unemployed in January 2013 may depend on whether 215,000 Americans find a job every month between now and Election Day 2012.