Just how much would a continued weak economy hurt President Barack Obama’s 2012 reelection chances? There are a few different ways of looking at this — and none of them seem particularly promising for the man currently occupying the Oval Office:
1) Slow Economy. Yale economist Ray Fair has a well-known election forecasting model that uses three economic variables to makes its call: a) growth rate of real per capita GDP in the first three quarters of 2012; b) growth rate of the GDP deflator in the first 15 quarters of the Obama administration, c) number of quarters in the first 15 quarters of the Obama administration in which the growth rate of real per capita GDP is greater than 3.2 percent at an annual rate.
Now Fair, who also has an economic forecasting model, is pretty bullish on the economy (at least as of July 31), predicting real per capita GDP growth of 3.6 percent and sharply lower unemployment. (In recent years, the economy overall has grown about a percentage point faster than GDP per person. So Fair is talking about 4 percent-plus GDP growth). The academic sees an Obama victory:
The prediction of an Obama victory with 53.4 percent of the two-party vote is conditional on the assumption that there will be strong growth between now and the election. According to the July 31 forecast from the US model, by election time the economy will have been growing well for five consecutive quarters, with the unemployment rate down to 7.9 percent. The economy will have turned around, and the vote equation predicts a victory for the incumbent party.
But most big bank economists aren’t nearly as optimistic. Take JPMorgan, for instance. Its economic team sees the overall economy growing just 1.3 percent next year with an unemployment rate of 9.5 as Election Day approaches. Plug in JPMorgan’s numbers and you get a decidedly different result. Under that scenario, Obama would get just 47.7 percent of the vote. And while that is a popular vote number, it is unlikely Obama could win the electoral college trailing that badly in the popular.
2) Miserable voters. Obama’s chances also look dodgy if the electorate is as gloomy in November 2012 as it is in August 2011. There are different measures of consumer confidence. One is put out by the Conference Board, and it currently stands at an extremely low 59.5. If that index is at 100 or higher, going back to 1968, then the incumbent party is quite likely to win. (Whether it was accurate for the 2000 election depends if you judge using the electoral or popular vote.) If not, then the opposition party wins (graphic via the National Association of Realtors):
Another index is compiled by Thomson Reuters and the University of Michigan. And it’s as low today as it was during the Jimmy Carter nadir:
Consumer sentiment dropped to its lowest point in more than three decades in early August, as fears of a stalled recovery gelled with despair over government policies, a survey released on Friday showed. The Thomson Reuters/University of Michigan’s preliminary August reading on the overall index on consumer sentiment came in at 54.9, the lowest since May 1980, down from 63.7 in July. It was well below the median forecast of 63.0 among economists polled by Reuters.
3) Economic anxiety. A recent Gallup Poll found that 76 percent of Americans mention some economic issue — the economy in general, unemployment, debt — as the most important problem facing the country, the highest percentage since April 2009. And just 11 percent said they were satisfied with how things are going in the United States:
4) The Big, bad picture. And if you still want more, I believe this is the Mother of All Political Economy charts, with data through the end of June (from American Century Investments). Even a quick glance suggests Obama faces an amazingly challenging environment:
Now perhaps the economy is about to ignite. Or perhaps Republicans will pick a terrible nominee. Or perhaps some international crisis will make the economy less important. Or perhaps voters will simply give Obama the benefit of a doubt since he did inherit the Great Recession. But Gallup already has his approval at just 40 percent (with the RealClearPolitics average at 43.5 percent.) Another year of high unemployment and show growth — much less a double-dip recession — seems likely to make Obama a one-term president.