The conventional wisdom among many political pundits is that President Barack Obama faces an uphill re-election battle in large part because unemployment seems stuck at historically high levels. Economists who have studied the impact of the job market on past elections beg to disagree.
It’s true that no president since Franklin Roosevelt has been elected when the unemployment rate was over 7.2 percent. That was where the jobless rate stood in 1984, when Ronald Reagan won a second term, beating Walter Mondale in a landslide, with 59 percent of the popular vote.
The jobless rate stood at 7.4 percent when George H.W. Bush lost his 1992 re-election bid against challenger Bill Clinton; it was at 7.5 percent in November 1980, when Jimmy Carter lost his job to Reagan.
If that were the only statistic that mattered, Obama indeed would have his work cut out for him.
Though the job market began gradually improving in the second half of last year, employment growth remains sluggish. The jobless rate dropped by a sharp 0.5 percentage point in the last three months of 2011 but currently stands at 8.5 percent and is expected to show little or no improvement when the government reports updated January data on Friday. Some forecasters caution the rate might even rise again this year as “discouraged” workers, who are not included in the official "headline" rate, begin looking for work again and raise the count of those considered unemployed.
But a high unemployment rate, by itself, isn’t necessarily a problem for an incumbent president, according to Ray Fair, a Yale University economist who has analyzed the impact of the economy on presidential elections back to 1916.
“What the data show is that it’s the change in the economy, primarily in the year of the election, that matters — not the level,” he said.
So far, the trend is moving in the right direction. But it could easily be derailed by this fall.
Fair’s current forecasts show a very close race. But his models show that Obama still stands a good chance of re-election even with a relatively modest drop in the unemployment rate by November.
“When they go to the booth, voters would see this as a positive sign: Obama’s got the economy growing again,” said Fair. "Even though the unemployment rate is higher than full employment, the trend is good and things are improving.”
Reagan’s 1984 re-election is a good example of that scenario: at 7.2 percent in November, the jobless rate was down more than a full percentage point from a year earlier as the economy continued to shake off the lingering impact of the 1980-1982 recession that sent the jobless rate soaring to 10.8 percent.
To capitalize on the high level of unemployment, GOP presidential hopefuls have hammered Obama's economic record, blaming a variety of White House policies for the weak job market. Front-runner Mitt Romney has tried to make the case that, if elected, the former Massachusetts Republican and Bain Capital president would apply his business experience to do a better job putting Americans back to work.
But for all the money spent on political advertising, the airtime devoted to debates and the miles logged in campaign jets and busses, the GOP attacks and Romney’s 162-page policy proposal may not mean much, say some analysts.
The correlation between economics and presidential elections is so strong, they say, that most of the attention on wider issues and policy differences -- from fiscal matters like taxes and the deficit, to social issues like income inequality and immigration -- have very little impact on voters’ final decision.
“Political scientists don’t tend to think the specifics of the challengers platform matter all that much,” said Brendan Nyhan, a government Professor at Dartmouth College. “Incumbent re-elections are primarily a referendum on the incumbent and specifically on their economic record. If the economy is strong, the challenger may try to shift onto some other issue, but that rarely works.”
Even as the economy continues to muddle through at a relatively weak growth pace, Obama may also be in a position to play a few important cards not available to his Republican challenger.
Incumbents have long used the power of the White House to enact programs and policies that help give the economy a jolt in the months before voters go the polls. Richard Nixon famously pressured then-Federal Reserve Board chairman Arthur Burns to cut interest rates to help spur the economy in the months ahead of his successful 1972 re-election despite widespread opposition to his administration’s Vietnam War policies.
That’s increased the stakes in the ongoing debate over extending payroll tax cuts and long-term unemployment insurance. Both measures, if enacted, would improve American households' spending power and improve their sense of personal financial well-being. If Republican’s succeed in block or paring down those measures, the impact on consumer spending could create a further drag on the economy just in time for the campaign’s home stretch this fall.
Those two pocketbook helpers, though, may be Obama’s last chance to give the economy the momentum he’ll need to fend off voters’ money malaise, according to Mark Zandi, an economist with Moody’s Analytics and former advisor to 2008 GOP presidential hopeful John McCain.
“It’s going to be difficult to pass any legislation at this point in time for it to flow through to the economy,” he said. “It takes time -- not weeks, but the next quarter or two. So time is running out to make a difference.”