February 3, 2012

8.3% unemployment - look past the headline.

No joy.
There may be joy in Mudville today about an 8.3% unemployment rate, but that doesn't mean the mighty Obama hasn't struck out.  Look past the headline for some perspective on the unemployment situation.
The economy created jobs at the fastest pace in nine months in January and the unemployment rate dropped to a near three-year low of 8.3 percent, providing some measure of comfort for President Barack Obama who faces re-election in November.

Nonfarm payrolls jumped 243,000, the Labor Department said on Friday, as factory jobs grew by the most in a year. The gain in overall employment was the largest since April and outpaced economists' expectations for a rise of only 150,000.

The report pointed to underlying strength in the economy, despite expectations that growth will slow in the first quarter.

Economists had expected the jobless rate to hold steady at 8.5 percent. The rate is the lowest since February 2009 and has dropped 0.8 percentage point since August.
What's the real story beyond the headlines?

(1) Obama has reason to smile right now - the unemployment rate has dropped 0.8% points since July. Six more months like that and he'll be able to claim he's a hero going into the November election.  He'll be able to claim Keynes was right. He can claim socialism works.  He can claim pretty much whatever he wants to claim.  It doesn't matter if it's true, he'll be able to use the trend line to his political advantage.  No matter who the GOP nominee turns out to be, Obama will have an easier sell if this trend continues.

(2)  What is Obama is doing in his re-election bid?  He's going to thug himself out as a terrorist killer AND be a peace champion by leaving Iraq and Afghanistan (early).  He's making moves to shore up his base and independents.  He still wants to be a sort of Tabula Rasa for voters.  Why?  He doesn't believe the employment situation is going to be strong enough to be able to make the kind of claims in point one above.

(3) What is the big picture? The unemployment rate peaked at 10.1% two years ago.  If it hadn't come back this much, the president's approval ratings would be 10-15 percentage points lower than they already are.  But he doesn't need to worry about what his approval ratings were, or are - just what they need to be on election day.  They aren't likely to be much better than now.

The data before seasonally adjusted numbers show that 2.7 million jobs were lost between December 2011 and January 2012.  That's some serious seasonal adjustment going on.  Consider the problems in Europe, the potential for a slowdown in China, the housing problems at home in America, and the fact that the Fed wants to keep rates so low through 2014 and it all adds up to the very distinct possibility that 8,3% might be the best rate the president gets to crow about this year. In fact it could backslide a few points and that causes a real problem for the president's re-election bid.

What really is happening or going to happen with unemployment is not clear.  What is clear is that the president is taking a real chance by blowing his own horn based on what the rate is today.  Regardless of whom he will be facing in the fall, he could be painting himself into a corner that will be impossible for him to get out of in time for the election.

Addendum: insight courtesy of Rick Santelli, and numbers brought to you by creative accounting.

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