Unemployment Forecast Bad News For Obama

President Obama is likely join the ranks of the unemployed come noon on January 20, 2013 if a Fed forecast is right.

The Fed forecasts unemployment to remain at very high levels through the 2012 election, WaPo reports.

Unemployment is set to remain higher for longer than previously thought, according to new projections from the Federal Reserve that would mean more than 10 million Americans remain jobless through the 2012 elections – even as a separate report shows corporate profits reaching their highest levels ever.

Top Federal Reserve officials project that the unemployment rate, now 9.6 percent, will fall only to about 9 percent at the end of 2011 and about 8 percent when the next presidential election arrives, in late 2012. The central bankers had envisioned a more rapid decline in joblessness in their previous forecasts, prepared in June.

The sober economic forecast comes despite signs that the recovery is picking up slightly. The Commerce Department said Tuesday that gross domestic product rose at a 2.5 percent annual rate in the three months ending in September, not 2 percent as earlier estimated. And there have been solid readings in recent weeks on job creation, manufacturing and retail.

The apparent contradiction reflects the brutal math that faces a nation trying claw out of a deep recession: Moderate growth, which would be fine in normal times, will do little to bring down sky-high joblessness, a reality reflected in the Fed’s forecasts.

If these projections hold up — and that’s a big If, with economic forecasts traditionally having accuracy rates on par with horoscopes — President Obama is likely join the ranks of the unemployed come noon on January 20, 2013.   (Of course, he’ll soon get a multi-million dollar book advance and command $100,000 a pop for speeches, so don’t feel too bad for him.)

Recall that, shortly before the Republican landslide earlier this month, I explained why Obama is the odds-on favorite for 2012:  “A second term is the default position.   Excluding cases where a president vacated his office prematurely owing to death or resignation and leaving an unelected successor, we’ve never had consecutive one-term presidents.”   But I included a caveat that his chances go down significantly if “The economy remains a disaster.”

Jim Geraghty goes further this morning:  “If unemployment really is 8 percent or higher on Election Day 2012, then President Obama’s reelection chances are toast. Oh, I suppose the GOP could nominate a terrible nominee, or there could be some giant last-minute factor like a terror attack, but a president who presides over four years of exceptionally high unemployment in his first term won’t get a second term.”

Ezra Klein isn’t as gloomy: “It’s not impossible that Obama could win with those numbers, but it’s not a sure thing, either. The most common comparison for Obama is Ronald Reagan. At this point in the cycle, both presidents had approval ratings in the low-40s, and both presidents had just suffered large midterm defeats. But the recession facing Reagan was the product of tight Fed policy meant to break stagflation When the Fed loosened the reins, the economy roared back to life. By November of 1984, the jobless rate had fallen from a high of 10.8 percent down to 7.2 percent. If Obama gets those numbers, Romney doesn’t stand a chance.”

But the 7.2 percent that prevailed at the time of Reagan’s landslide re-election came after a decade-long economic slump.  Voters in 2012 will still have a booming economy in recent memory.

At 8 percent, Obama will be in trouble.  He’ll try to blame George W. Bush, but that won’t fly.   The Republicans could help him substantially by nominating Sarah Palin, but I tend to think that won’t happen.   And, if the Fed estimate is low — say, unemployment is at 9 percent — anything short of a Christine  O’Donnell-Sharron Angle ticket would win.

FILED UNDER: Campaign 2012, Economics and Business
James Joyner
About James Joyner
James Joyner is a Security Studies professor at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. john personna says:

    Your timing is poor.  Today’s unemployment filings were a surprise to the happy side.

  2. James Joyner says:

    The monthly numbers aren’t all that important. What matters is the trend and the mood of the country by late summer/early fall 2012.

  3. john personna says:

    You are correct James, that the trend matters.  But the _surprise_ means that the trend isn’t what we thought it was yesterday.  The 4-week moving average, for initial unemployment claims, was 443,500. The median projection of economists surveyed by Bloomberg News for this week’s number was 435,000. The actual number was 407,000, which is the lowest level since July 2008.
     
    I’ve been a big pessimist, but I sense a corner being turned, for what it’s worth.
     
    Well, checking Consumer Metrics, we can certainly see it there:

    http://www.consumerindexes.com/
     
     
     

  4. Avaron says:

    The Fed is making the most common forecasting error, extrapolating the recent past.  I would bet the other way.

  5. ponce says:

    Obama would be in trouble if the Republicans could nominate someone called generic.
     
    And if the incoming Republican majority in the House hadn’t claimed that they were going to fix the economy by trimming $1 trillion worth of “waste, from and abuse” from the federal budget.

  6. anjin-san says:

    It will be interesting to watch the right try to spin recent good news about the employment picture. When there are no more productivity gains to be squeezed out of the current workforce, corporations will have to tap the mountains of cash they are sitting on and accelerate hiring.

  7. James Joyner says:

    @anjin-san
    What’s your evidence that the unemployment problem is primarily one of corporations sitting on their cash?  Surely, they’d rather pay employees to make them money?

  8. sam says:

    OTOH, he does have the incoming GOP Congress in his favor…
     
     
     
     

  9. EJM says:

    Actually, I expect businesses large and small to breathe a huge sigh of relief when the Bush tax rates are extended for everyone for at least two more years, and it becomes clear that the Republican House is serious about cutting spending and not implementing Obamacare. Unemployment will begin to tick downwards, possibly better than the forecast, despite the Administration’s policies not because of them.
    Then with total certainty the Obama Administration and its media flacks will claim credit for the improvement as a sure sign that the “stimulus” grotesquerie is working, just as they said it would of course, and “recovery summer” is upon us by March.
    It will then be interesting to see if the American people can be fooled by this charlatan a second time.

  10. anjin-san says:

    > Surely, they’d rather pay employees to make them money?
     
    Clearly, you don’t work for a major corporation  🙂
    IN many cases, corporations are simply squeezing the existing workforce. There is very little in the way of lateral or upwards opportunity for employees, so they work harder and thank their lucky stars that they still have a job. Marginal and non performers have long since been laid off, the people who are left tend to be the most productive, and this has worked to the advantage of employers. Productivity has continued to go up, and payrolls have gone down. Profits have soared.
     
    I am not sure I would say this is the primary cause of unemployment, but it is certainly a factor.  Corporations are (to a great extent) piling up cash.  A lot of them are still laying people off, in spite of what are in many cases record profits. Oh yea, most of the CEOs are getting huge bonuses to go with their already huge salaries.
    One of the core problems with our economy is that the name of the game is now a few people walking away with enough money to buy an island. Other considerations, like the long term health of companies, the welfare of employees and the overall success of our economy are lagging far behind in importance.

  11. anjin-san says:

    > Actually, I expect<strike> businesses large and small </strike> billionaires to breathe a huge sigh of relief when the Bush tax rates are extended
     
    FTFY

  12. sam says:

    “it becomes clear that the Republican House is serious about cutting spending and not implementing Obamacare. ”
     
    I fear you are in for a profound disappointment.

  13. Drew says:

    “What’s your evidence that the unemployment problem is primarily one of corporations sitting on their cash?  Surely, they’d rather pay employees to make them money?”
     
    Heh.  Mr Joyner makes the correct point, and then anjin-san talks psycho.  Its fascinating, the left.  They bitch and moan that businesses are just greedy, money grubbing entities, but then lose their way when confronted with the notion that those businesses won’t invest if their is no greedy, money grubbing incentive.   

  14. sam says:

    “when confronted with the notion that those businesses won’t invest if their is no greedy, money grubbing incentive.”
     
    Hmmm. I thought uncertainty (that self-priming counterfactual pump) was the kvetch. Maybe the money grubbing incentive would be filled order books. Possible, huh?

  15. Tano says:

    “What’s your evidence that the unemployment problem is primarily one of corporations sitting on their cash?  Surely, they’d rather pay employees to make them money?”
     
    Oh c’mon James, this seems rather disingenuous. It is a been an oft-repeated charge by the right that not only is this true, but it is, of course, Obama’s fault. He has injected so much uncertainty into the marketplace that businesses are afraid to invest their trillions that are sitting around doing nothing. Don’t tell me you haven’t heard that argument….I wouldn’t be surprised if you hadn’t made it yourself.
     
    Anyway, here are a couple of links:
    WaPo in July TheStreet in Oct
     

  16. ponce says:

    “They bitch and moan that businesses are just greedy, money grubbing entities, but then lose their way when confronted with the notion that those businesses won’t invest if their is no greedy, money grubbing incentive.   ”
     
    A simple tax on corporate cash reserves that can be avoided by hiring enough unemployed workers would be incentive enough.

  17. sam says:

    Let me expand a bit on my last. The argument about uncertainty goes like this, as I understand it:
    Businesses are not expanding (or getting loans to expand) because of uncertainty. This uncertainty comprises fears about the effects of taxes, regulations, healthcare, etc. on future profits. So, the Acme Widget Company, which is now making zero profits, is not expanding because of fears over what the effect of taxes, regulations, etc. would have (the counterfactual) on profits realized from an expansion. That is, Acme would rather continue making zero profits than take the (entrepreneurial) risk of expanding and making nonzero profits (minus taxes, healthcare costs, etc). But, nonzero profits minus taxes, healthcare costs, etc. are better than zero profits. So, unless the guys running Acme are irrational, it seems to me that uncertainty cannot be the cause of Acme’s doldrums.

  18. john personna says:

    The poll I saw showed “poor sales” as a number once concern amongst businessmen for the first time .. well, ever.  Of course, they also complain about Obama.  And so GOP stalwarts read that poll and say “look, they complain about Obama!”
     
    The elephant in the room is generally the real story.

  19. Davebo says:

    Shorter Joyner…
     
    Look out, things are bad enough to get Palin elected.
     
    But don’t assume he hopes for that.  He’s much too passive aggressive for such things and really has the best intentions for the country we both served.
    It’s a freaking boon for the therapist industry.

  20. JKB says:

    Please Sam, tell us more about this exciting new business that while unprofitable now just needs more money spent on more facilities and employees to make more product that will suddenly become profitable even after paying for increased wages, taxes, loan payments and raw materials.  Up till now, the “market” has responded to increased supply of something that isn’t in demand by causing prices even lower.
     
    I will say it sounds a whole lot like the “Stimulus” and we all know how profitable that turned out to be.
     
    Businesses do not exist to employ workers.  They exist to provide goods and services to generate profit.  They hire people who exchange their services for pay (profit) to the company so that in total they produce the goods or services the company sells.  The uncertainty right now is how much of the goods and services others might purchase thus companies are unsure how much money they will receive for their output.  Plus, how much the pay for employees will increase thus raising the cost of the companies output.  Since some seem confused, profit is the remainder after all the costs, employee or otherwise, are subtracted from the net amount received for the companies products or services.

  21. Drew says:

    c’mon, sam –
     
    You just did a weak hip shot.

  22. anjin-san says:

    Ah Drew, simple words from a simple man, as always.
    I like profit as much as the next guy. I spend my days looking for ways to increase it.
    But when the CEO of WAMU encourages predartory lending because it is more profitable, and eventually takes his company over a cliff leaving thousands homeless and/or jobless while walking away with over 100 million -yes, I have a problem with that.
    When the CEO of Wellpoint makes 60 million a year while actively looking for ways to screw people who have been paying premiums for years out of the coverage they need when they get sick, I have a problem with that too. If that makes you think less of me, I will still be able to sleep at night.
    I have no problem at all with corporations being profitable, even wildly profitable. I do have a problem with them fvcking people to get that way. “An honest buck” is an essential American concept. Sadly, it is one the right seems to despise.
    Most of history has consisted of 1% of the population owning everything, a small class of professional lackeys who serve them and live reasonably well off of the crumbs they leave, and peasants and serfs. We have been moving in that direction for about 30 years, and it has made America a less special place than it once was.
     
     

  23. anjin-san says:

    > The uncertainty right now is how much of the goods and services others might purchase thus companies are unsure how much money they will receive for their output
     
    JKB – perhaps you can point to a time in history when this was a certainty…

  24. sam says:

    Drew: “You just did a weak hip shot.”
    C’mon, dude. In CounterArgument 101, that gets a failing grade. The problem I have with the uncertainty argument, as it’s being deployed these days in some precincts, is how convenient it is. And by “uncertainty argument”, I mean the one that involves uncertainty over future taxes and regulations and such. That argument is a convenient club being used to beat up on the government. (A purely ad hominem aside: When the towering intellects on Fox and Friends trot the argument out, the red flag area of your brain should engage.)
     
    And then comes JKB, who, I gather,  thinks he’s refuting the argument I made by repeating the conclusion of the argument I made: “The uncertainty right now is how much of the goods and services others might purchase thus companies are unsure how much money they will receive for their output. ” Yeah, that’s what I said. (To recap quickly: If ‘uncertainty’ is taken to mean ‘uncertainty over taxes, regulation, healthcare costs, etc,’. that kind of uncertainty is not the cause of the current tsouris.)
    “When asked why companies are holding back so much, many economists cite broader uncertainty that goes well beyond anything happening in Washington. Firms aren’t sure whether the economy can sustain a strong recovery. And as long as consumer spending remains low, there’s not much incentive for companies to ramp up.” [http://www.washingtonpost.com/wp-dyn/content/article/2010/07/14/AR2010071405960.html]
    And
    “For a long time now, U.S. consumers just weren’t spending any money. If no one is going to buy, why should companies expand? Corporate managers would indeed be negligent and profuse if they hired more people and expanded capacity in the teeth of all these negative factors. Consumers aren’t spending because they’re worried. Companies aren’t expanding because there’s no reason to.” [http://www.thestreet.com/story/10903371/us-companies-sit-on-1-trillion-cash.html]
    There’s your true uncertainty.
     
     
     
     
     
     
     
     

  25. john personna says:

    The other thing about the uncertainty, or Obama fear, argument is that it can always be made.  It isn’t like sales or interest rates, where you can look at a number.  It’s nebulous, and that is its advantage in political spin.
     
    I guess Dems just weren’t smart enough to roll it out in the Bush days.  Why did the economy crash on his watch?  Uncertainty!  Business leaders didn’t know that crazy neocon budget busting stuff he was going to pull next.
     
    Interesting though, businessmen actually ate up that kind of uncertainty with a spoon.

  26. sam says:

    “I guess Dems just weren’t smart enough to roll it out in the Bush days. Why did the economy crash on his watch? Uncertainty! ”
     
    Yeah. As Kevin Drum points out (http://motherjones.com/kevin-drum/2010/11/uncertainty-meme):
     

    The main sources of regulatory change during Obama’s term so far have been PPACA and financial reform. During George Bush’s first five years, he approved No Child Left Behind, the PATRIOT Act, McCain-Feingold, Sarbanes-Oxley, the Homeland Security reorganization, Medicare Part D, bankruptcy reform, and two big tax bills. He also tried and failed to pass major changes to Social Security. And all this was in addition to the usual background hum of agency regulatory hearings and rulemaking changes — including a heap of financial deregulation that eventually contributed to an epic banking meltdown.

     

    And, not to be ovelooked,  launched us into two unfinanced wars.  Now on the Fox and Friends Regulations/Taxes/OmniObama Bashing Uncertainty Scale, one would think that those Bush things would have gotten at least a 9.9999. But, as Kevin points out, there was no squealing about sac-shriveling economic uncertainty back then.
     
     

  27. Kylopod says:

    Since it’s doubtful whether the economy will come “roaring back” in the next two years, the Republicans will see Obama as beatable and are therefore likely to try to field their best candidates, who might otherwise want to sit this election out due to the relative rarity of unseating incumbent presidents, particularly in times of war. Of course, it’s not clear to me who their best candidates are–the high-profile ones seem weak–and since presidential campaigns begin much earlier than they used to, the contenders will have to decide whether it’s worth it based on their assessment of the current situation, which is cloudy and ambiguous.

  28. JKB says:

    Well, the way you handle uncertainty is for those in power to give those uncertain a reason for confidence in their leadership.  Instead, business has had increasing reason To fear.  (See this by Nobel Laureate Gary Becker)

  29. LoachDriver says:

    Joyner’s a former Army officer?  I’m supposed to be impressed?  I’m also a former Army officer, but I was retired 40 years ago due to wounds incurred in Viet-Nam.  This makes me an expert on military affairs?  Give me a break!
    The economy is supposed to come back with a roar before election day, 2012 because of fed policy adaptations?  Give me another break.  Given Obama’s Marxist polivies, there’s no way the econony will recover with that albatross dragging it down.