Less than 14 months from now, on November 6, 2012, the U.S. will hold its 57th quadrennial election for President. If the current economic conditions persist, President Obama will likely suffer a massive and potentially historic defeat. Any analysis of the current economic situation, the public's general pessimism and perceptions of the President should lead one to that conclusion. The only thing that is preventing us from betting the farm on this is the fact that the election is several political lifetimes from now and there is still uncertainty regarding the direction of the economy -- it could in fact improve. And less importantly, we do not yet know if there will be a GOP nominee who appeals to a broad swath of the electorate.
Let's take a look at the current political and economic environment:
Since World War II, no sitting president has won re-election to a second term with an approval rating lower than 48% in the final polls before Election Day. With his approval rating currently in the 42-44% range, Obama is in a very vulnerable position. Obama's approval rating is now at the lowest point in his presidency and has been steadily declining since early May. Additionally, Obama's current approval rating is below the last two-term presidents at a similar point: Clinton and George W. Bush were at 44% and 52% approval respectively after Labor Day in the third year of their first term. And, as we will discuss below, this might be particularly troubling for Obama because his approval has not significantly or lastingly responded to the positive events of his presidency.
This is all about the perceptions of the economy and nothing else matters. Extreme comment you say? Well, think of it this way: on May 1, the President announced to a stunned and grateful nation that a Navy Seal team had just taken out Osama Bin Laden. Most public polls showed an immediate bump of 4 to 8 points in the President's approval rating. This lasted less than two weeks. Obama had done something Bush could not achieve over seven long years, and voters only gave him a modest and short-lived bounce. Obama's long, slow decline in approval appears to be decoupled from the major news events of his presidency. Other than the aforementioned successful raid which killed Osama bin Laden, non-economic events appear to have no lasting impact on voter perceptions of Obama. This is equally true of negative events: 66 soldiers died in Afghanistan last month--the highest monthly toll ever in that war--and there was barely a blip. Other events that Democrats would consider to be the signature achievements of Obama's presidency, such as the passage of the stimulus and health care reform legislation, had little or no lasting impact on Obama's approval rating. Simply put, we rather doubt that there is anything the President can do or say which will change perceptions of his Presidency. Obama needs either substantive improvement on the economy or a major mistake by his GOP rival to win 14 months from now.
If the Obama team thought last summer was bad (think Gulf Oil Spill and rising unemployment), this summer was even worse. The debt-ceiling battle and the S&P downgrade along with no improvement on the jobs front pushed voters over the edge. For the first time since the fall of 2008, less than one fifth (19%) of voters believe the country is going in the right direction. Nearly three-quarters (73% according to the WSJ/NBC poll) say the country is on the wrong track. This is a politically devastating number for the President.
The President's political support has eroded dramatically since his inauguration. A number of polls released last week show Obama's approval rating at the lowest point in his presidency. The Wall Street Journal/NBC poll pegged his approval rating at 44%. That represents a 17-point drop from his post-inauguration high water mark of 61%. And Obama's approval rating has fallen nearly 8 points over the summer. Our own average of the last 5 public and private polls shows his approval rating at 42%.
For most voters, this country has never really emerged from the Great Recession. This is important to realize. While technically, our anemic GDP growth means that we "came out" of the recession in June of 2009 this has been lost on voters. The distinction is meaningless. Here is a quick look at key economic indicators:
Unemployment currently stands at 9.1%. You have heard it before, but it bears repeating: no American president has been re-elected in the last 50 years when unemployment was above 7.2%. We do not believe it has to reach that number for Obama to win, rather, there needs to be a demonstrable pace of drop in unemployment that signals to voters that things are getting better. Without that, Obama is likely a one term President. The perception (and reality) of no improvement is killing the President politically because it is sapping consumer confidence, resulting in less consumer spending and therefore the determent of job growth. The Conference Board's Consumer Confidence Index®, which had improved slightly in July, plummeted in August. The Index now stands at 44.5, which is down significantly from 59.2 in July. The chart below shows how low consumer confidence is within the context of the last decade.
Long-term unemployment is the highest since the 1930's, according to the Bureau of Labor Statistics. The job growth after the end of the recession is the worst since World War II.
Home ownership is the lowest since 1965.
The federal debt is the highest percentage of GDP since WWII.
In response to the drawn-out recession and the over-with-a-whimper recovery, the country remains in a prolonged period of national pessimism that seems at this point to be intractable. We've said it before, but the political impact of this cannot be overstated. While the Big Three indicators that the electorate is most in touch with--unemployment, gas prices and the Dow--all quieted down in August, they are still at historically unfavorable levels. Last week's Wall Street Journal/NBC poll found that more than 70% of adults think the economy still has not hit bottom. It will take a real recovery with significant improvement in at least two of these three topline economic measures to begin to turn back negative perceptions of the economy. With 14 months before Election Day, there is still plenty of time. But because economic perceptions invariably lag reality, the economic clock is definitely ticking for Team Obama.
By a number of measures, it is middle-class Americans who have been hit the hardest by the ongoing recession and Obama's approval rating is starting to suffer even among his base, including groups like union supporters. According to that WSJ/NBC poll, Obama is at 45% approve/49% disapprove among union members and those living in a union household. Obama's bus tour of the Midwest seems tailor-made to shore up his support among this cornerstone of his 2008 coalition, suggesting the White House is well-aware of this issue.
Yes, President Obama can win re-election. But that is very unlikely unless there is major drop in the unemployment rate. Again, we do not believe the rate has to be at 7.2%, and it almost certainly will not be that low. However, voters have to believe that things are improving, so the rate of change has to be meaningful. Our sense is that if the unemployment rate improves by 0.1% each month for the next year--which would put the rate around 8% on Election Day--that will give Obama a shot at re-election. This is what happened for Reagan in the last 15 months of his first term when the rate dropped even more dramatically...from 9.5% to 7.2%. In fact, when you look at Presidential approval and the economy (unemployment and inflation) the best correlation for Obama is 1983 and Reagan. Like Obama, Reagan had a net negative approval rating at this point in his reelection, facing a Misery Index of 12.1 (compared to today's 12.7). Carter, on the other hand, was too far gone: a net disapproval of 22%, and double-digit inflation. While Clinton's approval rating is not dissimilar to either Obama or Reagan, the economy was in a much stronger position. Both Bushes, by contrast, had high approval ratings mostly due to American military intervention and the country's reaction to a terrorist attack.
The question is whether this economy can improve at the rate it did for Reagan. At this time the answer to that appears to be no and for that reason, Governors Perry and Romney have good reason to be confident this morning.
We will be back in a couple weeks with our thoughts on the GOP race. Thanks to John Zirinsky and Jennifer Myers for their insights and contributions to the Election Monitor.
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