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Morning Jay: Will the Economy Save Obama?

6:00 AM, Jan 10, 2012 • By JAY COST
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Based off last Friday’s jobs report, Jonathan Chait thinks the answer to the title question might be “Yes:”

Defeating an incumbent president, historically, seems to require either a major scandal, a failed war, or a terrible economy. We have a terrible economy. But the direction seems to matter more than the level — Ronald Reagan famously cruised to reelection with a high unemployment rate because the economy bounced back from the deep but quick 1982 recession. Mitt Romney has made the state of the economy his central theme against Obama. The entire premise of his campaign is that the economy is bad because Obama's economic program has failed.

If voters think the economy is improving, Romney has no ammunition left. That is still the smart play for Romney, because if the economy feels strong, he probably can't win anyway, so he needs to plan for the scenario that gives him a chance to win. A few months ago, that scenario was looking almost certain. Now it's looking far less likely.

There is good reason to celebrate the addition of new jobs to the American economy. However, we have to keep the broader context in mind, especially as it regards the president’s reelection prospects.

1. There are margins of error to these jobs estimates. The jobs numbers that come out every month are based on two different surveys, the “establishment” survey that gauges employment based on businesses and the “household” survey that gauges it based on individuals. Both estimates are just that, estimates – based on a sample, with a margin of error. In the case of the “establishment” survey, the margin of error is approximately +/- 100,000 jobs per month.

2. When we factor in the margin of error, we find no statistically significant difference between December and the 2011 average. The average gain in nonfarm payrolls over the course of 2011, according to the establishment survey, was about 137,000 jobs per month. Some months were higher, others were lower, but almost always it has been within the margin of error for that number. And so it was this month -- 200,000 is not statistically different than what we have seen much of this year.

3. Seasonal issues cloud the December jobs report. As I noted last Friday, there was a quirky gain of 40,000 jobs in delivery services like UPS and FedEx. This will be “given back” next month, in all likelihood.

More broadly, per Cardiff Garcia of the Financial Times and BizzyBlog, there has been a strange development in the seasonal adjustments to holiday economic numbers since the start of the current downturn.

The economic data that the media reports is typically adjusted for seasonal factors to give us a sense of the underlying trends in the economy. However, the economic collapse in the fourth quarter of 2008 might have been partially interpreted by the statistical models that produce the adjustments as a change in seasonal patterns. So, the models may now be adding a larger seasonal correction than they should be. As we can see here, it makes a difference in the numbers that the media reports.

The formula that calculates the seasonally adjusted number started adding an extra 100,000 or so jobs to the December adjustment factor in 2008. If we take that out, we would have an actual print closer to 140,000 jobs, which (again) is right in line with the annual average.

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