May 26, 2012 – 10:40 a.m.
Political Economy: Perception Matters
By John Cranford, CQ Columnist
If anyone needs further proof of the fragile state of the U.S. economic recovery, the Congressional Budget Office’s explicit warning last week should suffice. CBO told lawmakers to expect the economy to slip again into a recession if they allow tax rates to increase on all taxpayers on Jan. 1 as scheduled and if they allow an across-the-board spending cut of more than $100 billion to kick in on Jan. 2, as current law requires.
The message is that the $15 trillion U.S. economy is still barely on its feet almost three years after the last recession bottomed out, and still doesn’t have sufficient momentum to withstand such a sudden withdrawal of fiscal stimulus. That can’t be good for President Obama, who knows that the course of the economy over the next few months will probably determine whether his lease at 1600 Pennsylvania Ave. will be renewed in November.
So, will Obama be more like George Bush, who presided over a tepid recovery that didn’t kick in strongly enough in time to reassure voters — who pushed him out after one term as a result? Or will he be more like George W. Bush, who likewise oversaw a recession in his first term, but one that was fully in recovery mode by the time the voters had to make a choice?
For the moment, the answer isn’t clear. Absent some financial shock emanating from Europe, or a sudden domestic crisis of confidence sparked by what the public sees as persistent partisan prattle on Capitol Hill, whatever happens with the economy before Election Day is almost certainly predetermined — for good or ill.
The current recovery appears to be on a sustained path, although the benefits for jobless workers or middle-class paychecks are likely to be sparse for some time. There is little that the president — or the Republicans, for that matter — can do at this point to change direction. That leaves both parties able to do little more than try to control the message.
When asked, voters put the economy — and jobs in particular — at the top of their list of concerns. And for now, Obama scores about the same as Republican Mitt Romney when the economy is the subject. An ABC News/Washington Post survey the third week of May is typical. Romney led Obama 47 percent to 46 percent when the question was who would do a better job of handling the economy, while Obama bested Romney 47 percent to 44 percent when the question was who would be better at creating jobs.
The coming week will be important for the country and the politicians as an indicator of the economy’s direction and as a source of material for the spin doctors. First-tier economic statistics on growth, jobs and incomes will suggest whether the recovery is strengthening after a pause or is tailing off.
At this point, the numbers — and the spin — could go the way of the elder Bush or that of his son.
What We’ll Learn
The broadest, if perhaps least-telling, of the numbers will be a revision by the Commerce Department to the initial estimate that gross domestic product expanded at a 2.2 percent annual rate during the first three months of the year. That figure showed a slowing from the 3 percent fourth-quarter growth rate, which itself was a rate of expansion insufficient to yield a big increase in jobs.
Obama will have to hope that measured exports in the first quarter were stronger than previously estimated and that the growth rate is revised higher. But the GDP report is a backward look; we’re now two-thirds of the way through the second quarter of this year. And what people want to know is what’s happening now.
There will, however, be an early indication this week of the growth rate in the current quarter. Commerce Department figures on personal incomes and spending for April will show whether consumers are spending more or holding back. Incomes have been rising, but on a per capita basis and after adjusting for inflation, Americans still earned less in March than before the recession.
Political Economy: Perception Matters
That’s why the Labor Department’s employment report for May, which we will also see this week, will be the most important set of statistics. Payrolls are growing, but at a slow pace. The unemployment rate is falling but was a still-high 8.1 percent in April, with 12.5 million Americans officially unemployed.
It’s no wonder that two-thirds of the public say the recession isn’t over yet. The first President Bush had the same problem. In early 1992, when he sought election to a second term, the economy was expanding at an annual rate better than 4 percent (although the figures didn’t show that at the time). But while companies were hiring, unemployment was still rising, and the voters didn’t believe the economy was getting stronger. They chose Bill Clinton instead.
Twelve years later, when the second President Bush campaigned for re-election, the country was almost three years into recovery from a very mild recession, the economy was expanding more rapidly than it is today, and the jobless rate was roughly 5.5 percent and falling. The economy didn’t matter much.
Obama can hope that over the next few months the recovery shows signs that it is gaining strength. But like the first George Bush, even if that is true in fact, the public’s perception is likely to be what really matters. Right now, that’s a toss-up for him at best.