Will the Economy Recover in Time for Obama?

2010 August 14 by Frank Monaldo.

While most Democrats will concede in moments of honesty that this year’s Congressional elections are likely to be very tough on Democrats, many like console themselves by citing President Ronald Reagan’s experience in his first term. Reagan came to office in difficult economic times with unemployment rising to double digits. In the first Congressional elections (1982) after Reagan’s election, Congressional Republicans paid the political price for poor economic times. Democrats gained 27 seats in the House. Republicans faired better in the Senate with the balance between the political parties remaining essentially the same. The analogy most heartening for supporters of President Barack Obama is the fact that as the economy recovered, Reagan’s popularity exploded as he won re-election in 1984 in a landslide taking every state except Minnesota, the home state of his opponent Walter Mondale. Reagan even came within 0.18% of the popular vote of winning Minnesota. Mondale was able to carry the District of Columbia, as Reagan secured the electoral college 525 to 13.

For history to repeat itself in Obama’s favor will require more than the poor a Congressional showing in the mid-term election. That’s the easy part. The economy will have to enjoy a strong recovery. It is interesting to determine if the pace of current recover with match itself in speed and magnitude with Reagan’s 1983-1984 recovery. A political potent measure of the economic recovery (though a lagging indicator) is the unemployment rate. Below is a table of the unemployment rates for the Reagan and Obama. The table begins on the data of the highest unemployment for each of the presidents.

Interestingly, for both Reagan and Obama unemployment fell to 9.5% about eight months after the peak. However, unemployment had to fall from 10.8% rather than 10.1% for Reagan. At this point after the peak unemployment for Reagan, GDP was growing at at rate of 9% with the economy rapiding regaining jobs. The growth now rate is at best 3% and probably lower. In order for unemployment to abate at the same rate for Obama as during the Reagan recovery unemployment would have to fall to 8.5% by the end of this year. No one anticipates this. Indeed, the latest estimates from the Obama Administration suggests an employment rate over 8% when Obama stand for re-election. By contrast, on election day 1984 unemployment stood at 7.2%, over 3% points below its peak.

Obama has more about one more year than Reagan did for his recovery to take hold before his bid for re-election, but Obama’s recovery thus far has been at a lower rate. Obama will at best have an unemployment rate a full percentage point above what Reagan faced on election day.
To maximize chances for re-election, Obama needs to implement policies to increase economic growth. Thus far, high levels of government spending have done more to spook business than encourage it.

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