President Obama probably took a few minutes off his fundraising tour to hum a few bars of “Everything’s Coming up Roses” when the jobs report was published this morning. The private sector added 233,000 jobs in February, and earlier reports for December and January were revised upward by 61,000. Gains were more or less across all sectors, with the exception of construction. Better yet: the number of people actively in the labor force—the so-called labor force participation rate—recorded the largest increase in two years, and the total of the unemployed, discouraged workers and those working part time involuntarily dropped to 14.9 percent, some two percentage points below last year’s level. The unemployment rate stuck at 8.3 percent, but that is well below its peak.
Economists are increasingly of the view that this improvement in the jobs market is the real, durable thing. Some 82 of the nation’s 100 metropolitan areas saw the number of jobs increase in December 2011, up from 71 in December 2010 according to Moody’s Analytics. And HIS Global Insight is projecting that all 50 states will see employment increases this year.
There’s more to produce the megawatt smiles for which the president is famous, and account for his continued personal popularity in the face of a generally low opinion of his job performance. Consumers, increasingly confident of their futures, are borrowing more, with students availing themselves of the ample supply of student loans to stay in school longer, and consumers buying the new cars and trucks they have until now denied themselves.
At the same time as they borrow more, households are improving their balance sheets. That is possible because although consumers are blowing the dust off their credit cards, their after tax incomes are rising faster than their borrowing, as is their net worth (the value of homes, stocks and other investments minus debts). The household debt-to-income ratio now stands at around 113 percent, still high by historical standards but well below the 2007 peak of 130 percent. In the last quarter of 2011 household net worth rose by $1.2 trillion, as share prices rose to a level double that to which they plummeted in March 2009.
The president is also getting some bits of good news from the still-troubled housing market. Recall that he recently “persuaded” five large banks to pay $25 billion to some mortgage holders to compensate for assorted abuses. Now, in order to avoid a possible $850 million in penalties, Bank of America agreed to reduce mortgage balances of some 200,000 households. These lucky debtors will see the amounts they owe reduced from the sums now on the banks’ books to the much lower current value of their houses. This costs the bank nothing: All it has done is substitute a realistic house value for the fictitious value on their books. And it gives the president something for which he can take credit—part of his campaign to help the ordinary family that has slipped further behind the “rich.”
The housing market does seem to be recovering. The National Association of Home Builders reports that members’ confidence improved in February for the fifth consecutive month. Sales of previously owned homes rose in January, the number of homes on the market fell, and the supply of unsold homes is approaching more normal levels. Low mortgage rates and rising rents are making purchase seem a more attractive alternative than renting, reversing a situation that favored renting and has triggered a rise in the construction of rental properties. Problems remain, but things seem to be getting less dire than they were a short time ago.
Then there are the anecdotes. In Miami a flood of foreign buyers eager to invest in safe dollar assets are joining those who hanker after a sun-filled retirement to create a mini-boom in prices. Brazilians love the safety of America, Canadians the sun shine. Although still below their 2007 highs, prices for condominiums have risen for 18 consecutive months.
The frosting on the presidential cake comes from a group of the nation’s leading economists. The panel of luminaries, assembled by the University of Chicago’s Booth School of Business, agreed that employment would have been lower had not the treasury injected equity into the banking system. This takes some of the edge off Republicans’ criticism that the Obama administration bailed out Wall Street at the expense of Main Street.
The contestants for the Republican nomination chose to base their campaigns on claims that the economy was heading ever-downward because of the president’s policies, with other issues thrown in for good measure. They now must scramble for a substitute theme. Rick Santorum has his: social issues. Mitt Romney continues to search for one. Obama is shrewder, and has been careful not to claim too much. He points out that these figures have their downs as well as ups, and that “there is a lot more work to do,” presumably in his second term. That doesn’t mean he has refused to take any credit; rather, he recites the achievements of American workers, broadly hinting that he had something to do with the new level of job creation. And give the man credit for chutzpah. He stood up in a Rolls Royce plant in Virginia and attacked outsourcing of jobs—which is what Britain’s Rolls Royce is doing by sending jobs to Virginia. He wants to make things here and sell them there, as he says Boeing is doing with its Dreamliner—despite his administration’s effort to prevent Boeing from opening a plant in South Carolina.
The president’s caution about placing too much weight on monthly data is wise indeed. For we can’t yet be certain that this recovery is what Frank Sinatra would call “the good turtle soup” rather than “merely the mock,” whether it is “the real McCoy.”
For one thing the Europeans have agreed to pretend that they have solved the Greek debt crisis and commentators here have agreed to pretend that we believe them. By the time the crisis reemerges, our election will have been held.
For another thing is those high oil and gasoline prices that have more often than not strangled nascent recoveries in their cribs. It is a sign of the vacuity of campaign rhetoric that Obama blames the high prices on too much demand, and the Republicans on too little supply. Not for these graduates of Ivy League institutions (Obama, Columbia and Harvard; Mitt Romney, Harvard) the great 19th century economist Alfred Marshall’s formulation that supply and demand are two blades of a scissors when it comes to setting prices, and that neither alone can determine the price of a commodity.
Obama sees the solution in reducing the demand for gasoline by subsidizing alternatives to gasoline-driven engines (buy a gasoline-free Obamamobile and get $10,000 from the taxpayer), the Republicans in removing the Obama administration’s restrictions on the development of domestic oil supplies, and on his refusal to authorize a pipeline that would bring large supplies of crude oil into America from Canada.
The president also knows that much of the economy’s drive comes from super-low interest rates, and that those rates cannot persist forever. (Indeed, if the pension funds are ever to earn enough to meet their obligations, low rates had better be phased out sooner rather than later.) If the markets come to believe that the present political stalemate will persist after the next election, making it impossible for America to reduce its deficit, they will force borrowing costs up, not only for the treasury, but for mortgage applicants and the nation’s businesses. Recovery, R.I.P.
But that won’t happen before November 6, the only date that matters to the president and whoever emerges the wounded winner of the Republican primary process.