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Budget Deal Critical to Obama's Future?

12:00 AM, May 7, 2011 • By IRWIN M. STELZER
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When the killing of Osama bin Laden was announced, Washingtonians joined in the nationwide spontaneous celebrations. Then began the calculation of the impact of the president’s actions on his electoral prospects.

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President Obama’s poll ratings jumped a dozen points. Republicans will, for the time being, have a harder time typecasting the president as a wimp in the great tradition of Jimmy Carter. In short, foreign policy is more or less off the table for the president’s critics, at least for now.  

But economic policy definitely is not – 80 percent of Americans are unhappy with the direction of the economy and the president’s handling of it. In 2012 the question will be whether jobs trump a successful take-out of the man responsible for bringing down the Twin Towers. If they do, the renewal of the president’s lease on the White House is no sure thing, assuming some plausible Republican candidate emerges.

The latest jobs report shows that the president just might be able to add continuing good economic news to his newly minted credentials as a tough defender of U.S. security. The private sector created 268,000 new jobs in April, the biggest jump since February 2006. The number of long-term unemployed dropped by 283,000. In the view of some, the drop of 22,000 in state and local employment is further good news. There are some negatives, mainly a jump in the unemployment rate to 9 percent, but this is based on a smaller, less reliable survey than the basic jobs report. Close analysis of the data suggest that the job market has a long way to go before unemployment comes down, but close analysis is not the stuff of which election campaigns are made.

Although this month’s jobs report is good news for the president, he still faces the fact that there are some 25 million Americans out of work, working shortened hours, or too discouraged to continue job hunting. And a not-totally promising economic outlook.

The annual rate of economic growth fell from 3.1 percent in the fourth quarter of last year to a mere 1.8 percent in the first quarter of this year. Growth in the service sector is slowing, the inflation rate that real people feel – not the one that economists at the Federal Reserve Board think they should watch – is rising, and the housing market remains a drag on economic activity. Despite low interest rates and eased lending standards, demand for mortgages continues to decline. It will be a long while before house prices turn up, inventories of unsold houses turn down, and builders begin hiring construction workers to start a significant new round of home building.       

Perhaps the biggest problem facing the president is the continued rise in gasoline prices, now hovering around $4 per gallon. But even here he just might be able to add some good news to the bin Laden operation and the jobs growth: the recent significant decline in crude oil prices might ease pressure on gasoline prices, and even bring them down a bit. Gasoline at, say, $3.50 per gallon after a period of $4 prices generates a lot less anger than gasoline at $3.50 after a period of $3 gasoline.   

Finally, Obama will benefit from the fact that the manufacturing sector, centred in the so-called Rust Belt, has added 250,000 jobs since the low-point in December 2009, and has grown for 21 consecutive months, including by 10 percent in the first quarter. These Rust Belt states –Michigan, Ohio, Illinois, Indiana and parts of Pennsylvania – are key to any election victory. The Boston Consulting Group (BCG) is predicting that by 2015 the relatively low wages that have bedevilled American workers, along with improved productivity, a shortened supply chain, and rising wages and a rising yuan in China, will shift the manufacture of goods Americans buy back to the U.S. The revival of the manufacturing sector, if it continues, will enable the president to tell the trade union members who make up so large a part of his doorbell-ringing troops that his policies have restored “good-paying American jobs,” the sort that many manufacturers are having trouble finding skilled workers to fill. Never mind that the coincidence of still-high unemployment with a shortage of skilled workers says something about the employability and skills of those now out of work: that is the sort of policy issue that generates more political rhetoric than political action.

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