Friday, July 06, 2012

Latest Jobs Report: Bad Economy Now Baked in Cake

Reuters says jobs grew by just 80,000 in June, the third straight month below 100,000.  Economists estimate we need 125,000 jobs a month just to stay even with population growth.  Also the country's unemployment rate remained high at 8.2% .

During the second quarter, job creation averaged a mere 75,000 a month, down from averaging 226,000 in the first quarter. The 80,000 June job creation number fell short of economists' very subdued expectations for a 90,000 gain, but Reuters notes there were hopeful signs. Average hourly earnings rose 6 cents, the biggest increase in four months. And total hours worked hit its highest level since November 2008.

In June, we said one more bad report in the final four-month (July-October) pre-election period would be enough to “bake” the bad economy inside Obama’s election campaign “cake.” Now it’s happened. Obama talking about his economic progress or recovery will have little impact, no matter how unemployment ends up in the final three months.

Jonathan Rauch, in the liberal Washington Post, seems to agree. Rauch is worried Obama’s ineffectiveness on the economy will make him a Jimmy Carter, unless Obama steps forward with a bold new initiative. The president should back the Bowles-Simpson plan to rein in the deficit, which will win him independent votes. It will also free him to press for short-term stimulus spending, acceptable to both sides because Bowles-Simpson means the budget will balance long-term.

Rauch means well, but he won’t get Obama’s support for three reasons: 1) Obama is an ideologue determined to raise taxes to support big government, so Obama must first raise tax rates on the rich, while Bowles-Simpson would lower their tax rates; 2) Obama will continue pandering to seniors worried about losing their social security and Medicare, while Bowles-Simpson maintains entitlement reform is essential to any serious budget-balancing effort, and; 3) unlike Rauch, Obama believes he can win without Bowles-Simpson.

We have been writing for years that Democrats think Obama can win by just bringing home most of a base that's roughly 60% of the electorate. Still, in a bad economy it’s a tricky task, which explains why the “white working class” has now been added to Obama’s target groups.  The white working class may well decide who carries Ohio. The liberal New Yorker’s John Cassidy has outlined for us the latest Democratic strategy, which goes for less educated whites even as it drops efforts to claim economic success:
“We’ve got to make sure people fully appreciate Mitt Romney is not some safe alternative,” David Plouffe, one of Obama’s senior advisers, told the [New York]Times. Assuming the economy doesn’t get any worse, Obama’s strategists believe that they can eke out a narrow victory by mobilizing the same coalition that the campaign relied on in 2008—young people, minorities, women, and highly educated professionals—and by turning enough white working-class voters against Romney to deprive him of the surge in the Midwest that he needs in order to win.
This strategy is up against a hard reality. Looking at our update on how Obama is doing in meeting his minimum employment goals (chart below), it seems likely he will fall short. Job creation could average over 158,000 a month, but how can the president brag about creating at best a net few thousand jobs (and he’s certainly not there yet)? In fact, Obama has already shifted his rhetoric, instead crowing about creating 4.2 million “private sector” jobs over “26 months.” Of course, one can always be selective about the employment category and the time period one uses. It's just "lies, damn lies, statistics."

And no matter what, Obama’s still left with the current 8.2% unemployment rate, highly unlikely to fall to 7.8% in three months.

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