It's not just the economy, stupid

Obama 2012: The guy sitting in the Oval Office wins re-election some 70 per cent of the time. But, a weak economy can even the odds. US President Barack Obama is preparing a big speech for Thursday on job creation, in the hope of regaining the initiative. As things stand now, though, by some economic forecasts, he may be a slight underdog for a second term. Still, Republicans need an acceptable candidate and a positive message to take advantage in next year’s election.

Slowing GDP growth, still-high unemployment and a see-saw stock market have taken their toll on America’s mood and Obama’s popularity. Consumers are nearly as gloomy as they were in 1980, according to a Thomson Reuters/University of Michigan survey. Back then, President Jimmy Carter said the nation was plagued by a “crisis of confidence” — an event later mocked as his “malaise” speech. And, Gallup polls show Obama’s approval ratings at the lowest levels of his term, and the president neck-and-neck with four leading Republican candidates.

But, polls more than a year before an election aren’t reliably predictive. Incumbents Bill Clinton and Carter were essentially tied with their leading opponents 15 months before elections in 1996 and 1980, respectively. Come the actual November elections in those years, Clinton won by a landslide and Carter lost by one.

The economy’s trajectory is a big factor. In 1996, GDP grew at a 4.5-per-cent annual pace during the first nine months of the year. In 1980, it shrank at 2.4 per cent. Wall Street doesn’t expect either extreme in 2012 — the consensus is closer to muddling along. JPMorgan, for instance, forecasts unemployment around 9.5 per cent and GDP growth of 1.3 per cent. Plug that scenario into a well-known election model from Yale University, and the result is Obama losing to his Republican opponent by four percentage points. Plug in a recession and Obama loses in a rout like Carter.

That suggests a double-dip downturn might mean the identity of the Republican nominee wouldn’t matter much. But, anything less gloomy, especially if Obama can generate a more positive tone for his own campaign, and a GOP candidate hoping to win the White House and then govern successfully will need a persuasive message. For some hopefuls, that may require moderating their words and policies. But, for any candidate, if higher taxes and spending cuts are in America’s future — as they probably must be — the next 15 months will require education as well as electioneering.