Obama seeks positives from payroll precedent

In the 10 months leading up to George W. Bush’s re-election in 2004, the US economy posted relatively strong average monthly job gains of 186,000.

The contrast with his father, George H.W. Bush, who lost re-election in 1992, was stark: Mr Bush Sr was badly hurt by a weak economy, with tepid average monthly job creation of just 80,300 between January and October of his last year in office.

On Friday, Barack Obama will find out whether payroll formation is moving closer to its pace of 1992, which could signal defeat, or whether it will stay in the vicinity of its levels in 2004, possibly leading to victory.

So far this year, job creation has advanced at an average monthly clip of 164,600, placing Mr Obama, who is travelling through Ohio and Pennsylvania on a swing state bus tour on Thursday and Friday, within striking distance of the encouraging precedent set by Mr Bush Jr, his predecessor.

This might offer Mr Obama some degree of reassurance, even though the sluggish recovery is his main political vulnerability: no president since Franklin Delano Roosevelt has won re-election with the unemployment rate above 7.4 per cent. Mr Obama is almost certainly going to test that.

The recent slowdown in the US economy, hit by the escalation in the eurozone debt crisis, is threatening to undermine that statistical point of comfort for the president.

While job creation was above 250,000 per month in January and February, it has since dipped to 77,000 and 69,000 respectively for April and May. Economists are not expecting much better for June: consensus forecasts are of job gains of 90,000 last month, a sign that the economy has not taken a further turn for the worse but is not necessarily poised for a much faster rebound either.

The Federal Reserve will also be watching the payrolls figures closely for signs that may tilt it towards embracing – or dismissing – the possibility of further action to help the economy such as a new round of quantitative easing.

But the main show is likely to be political. Mitt Romney, Mr Obama’s Republican opponent, is likely to pounce on the data in order to recapture some of the momentum in the presidential race. The White House scored a big victory last week when the Supreme Court upheld the constitutionality of most of the 2010 healthcare law, and Mr Romney will be looking for ways to turn the attention back to the state of the economy as quickly as possible.

Indeed, on the eve of Independence Day this week, the Romney campaign unleashed a flurry of statements targeting Mr Obama’s handling of the economy, charging him with broken promises.

“From day one of his administration, the president has pursued policies and regulations that have hurt job creators and left millions of Americans struggling to find work,” Amanda Henneberg, a Romney campaign spokeswoman, said. “As president, Mitt Romney will take immediate action to give job creators the confidence they need to begin hiring again.”

On Tuesday, economists at Deutsche Bank, who have a relatively optimistic view of the US economy compared with their peers, said the weakness in the labour market may not be especially long lasting.

They based this on an analysis of weekly jobless claims data, which are showing fewer applications for benefits this year compared with the previous slowdowns in 2011 and 2010. This means Mr Romney may have a limited window to gain political advantage of the sluggish jobs numbers.

“If the pattern of the last two years continues to hold, the economy could experience two more months of soft employment reports, the June release next week and then the July employment report in early August, before employment would then rebound and possibly very sharply,” the Deutsche Bank economists wrote.

However, many other forecasters, including many at the Fed, believe the labour market will struggle through the rest of the year, which will continue to put Mr Obama in a tough spot.

While he may be sliding towards Mr Bush Sr’s election-year job creation record, Mr Obama is at least far from that of Jimmy Carter, who suffered from average monthly job losses of 18,400 in the run-up to the 1980 election.

But Ronald Reagan, with his average job gains of 340,100 per month in 1984, and Bill Clinton, with his 233,000 average monthly payroll increases in 1996, are unattainable – and Mr Obama will be looking on with envy.