The disappointing employment report made public on July 8 provided fresh evidence that economic growth is slowing and the state of the economy will be the central issue in next year’s presidential election. As if in anticipation of the jobs report, David Plouffe, senior political adviser to President Obama, said shortly before the bad news was released, “The average American does not view the economy through the prism of GDP or unemployment rates or even monthly jobs numbers. People won’t vote based on the unemployment rate; they’re going to vote based on: How do I feel about my own situation? Do I believe the president makes decisions based on me and my family?”
Plouffe has a point. Several incumbent presidents have been reelected in the face of abnormally high unemployment. Ronald Reagan won reelection in 1984 with an unemployment rate of 7.5 percent and, most famously of all, Franklin Delano Roosevelt was reelected in 1936 despite a jobless rate of nearly 17 percent. On the other hand, Gerald Ford was defeated in 1976 when unemployment stood at 7.7 percent, and George H.W. Bush lost in 1992 with unemployment at 7.5 percent. In his memoir Six Crises, Richard Nixon attributed his narrow defeat in 1960 to a sudden upsurge in unemployment in September and October of that year.
As Plouffe suggests, the unemployment rate by itself is not the decisive factor in national elections. What seems to matter most is the overall direction of the economy during the election season and whether voters see things moving in the right or the wrong direction. FDR and Reagan won reelection because they made the case that conditions were improving, as in fact they were in 1936 and 1984. Ford and Bush (41) lost because they could not make that case. This is why new signs of economic weakness pose such a threat to President Obama’s reelection.
Yale University economist Ray C. Fair has devised a simple formula by which we can accurately predict the two-party division of the popular vote on the basis of three economic factors: (1) per capita growth of real Gross Domestic Product during the three quarters preceding the election; (2) the growth in inflation during the incumbent’s term; and (3) the number of “good news” quarters during the incumbent’s term in which real GDP grows by more than 3.2 percent. This equation, when applied to elections from 1880 to 2008, yields a remarkably close approximation of the popular vote for president.
In recent months Fair has used his formula to predict the outcome of the 2012 election based upon economic forecasts of inflation and GDP growth in 2011 and 2012. Last November, when forecasts projected growth exceeding 3.5 percent in 2011 and 2012, it predicted a landslide victory for Obama with about 56 percent of the popular vote, up from 53 percent in 2008. When the equations were adjusted in April with somewhat less rosy forecasts, the president’s predicted vote share dropped to 52 percent.
During May and June of this year, forecasters have continued to downgrade their expectations for the economy over the next 18 months. The Wall Street Journal, in its June survey of economists, now forecasts real GDP growth of 2.7 percent in 2011 and 3 percent in 2012, down from February forecasts of 3.5 percent and 4 percent respectively. If these forecasts turn out to be accurate, there will be no more “good news” quarters for Obama between now and the election.
A similar survey released in May by the Federal Reserve Bank of Philadelphia also downgraded earlier forecasts for GDP growth from 3.2 to 2.7 percent in 2011 and from 3.1 to 3 percent in 2012. That survey also adjusted earlier forecasts for inflation upward from 1.7 to 3.1 percent for the rest of 2011 and from 2 to 2.2 percent in 2012. These forecasts were made well before the latest employment reports came out. It is a safe guess that new forecasts based upon second quarter data will be even more pessimistic about future growth.
What happens when we plug these latest numbers into Fair’s equation?
With GDP growth in 2012 at 3 percent (with an adjustment for population growth), inflation increasing moderately (especially in 2011), and no more “good news” quarters (there has been just one so far during his term, in the fourth quarter of 2009), the equation yields Obama 49.1 percent of the two-party popular vote. Current economic forecasts are thus projecting a dead heat in 2012 between President Obama and just about any Republican challenger, with the odds today slightly in favor of the challenger. If economic conditions should deteriorate beyond current forecasts, his chances of reelection would continue to fall accordingly. Notwithstanding the comments by his political adviser, President Obama is now at the mercy of economic conditions over which he has little control.
Obama came into office thinking that he would become a modern-day FDR, rescuing the U.S. economy from Republican mismanagement through public spending, aggressive regulation of business, and expansive welfare programs. The old-time religion does not appear to be working as we head into the election season. With the economy faltering and Obama out of ammunition, is it possible that instead of reprising FDR he will turn out to have been the contemporary incarnation of Herbert Hoover?
James Piereson is a senior fellow at the Manhattan Institute.