Index #13: Last Five Quarters

Will the 2012 presidential election follow historical trends and benchmarks, or are more complex dynamics at play this year? For the last "How We're Doing" Index ahead of Election Day, a team of scholars at the Brookings Institution looked at U.S. economic growth over the past five quarters, which has decelerated while the "fiscal cliff" and the European financial crisis loom. Historically, high unemployment and poor economic growth have doomed incumbents, yet President Obama's poll numbers remain relatively stable. Will the November election turn on the state of the national economy, or might relatively better economic conditions in key swing states be enough to carry Obama to reelection?Continue reading below chart »


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The U.S. economy continues to grow, but at a discouraging pace. U.S. real gross domestic product increased at an anemic 1.5 percent annual rate during the second quarter. While employment conditions strengthened earlier this year, new job growth has averaged about 100,000 positions per month since April. That's not enough to keep the unemployment rate from rising. The one bright spot has been the recent moderate improvement in the long-depressed housing market. The glut of houses is beginning to subside, leading to more housing construction and higher prices.

The economic outlook is not expected to improve much, if at all, heading into the election. Growth is likely to remain below 2 percent in the third quarter, while the unemployment rate will stay above 8 percent. Concern is growing that Congress won't act to avert the "fiscal cliff" of tax increases and spending cuts set to take effect in January, which the Congressional Budget Office has predicted would lead the United States into a recession.

The crisis in the euro zone is worsening, and the threat to the global economy escalating. Government bond yields of Italy and Spain have peaked vis-à-vis those of Germany, fueling speculation about the economic and political sustainability of the euro as their common currency. Partly because of continued uncertainty in Europe, the International Monetary Fund has revised growth projections for China and India downward for this year and next. In turn, the outlook for U.S. exports to Europe and the emerging economies is deteriorating. Above all, the dampening effect of the European crisis is likely to delay investment and hiring decisions, further slowing the anemic recovery we have seen so far in the United States.

What does this all mean for the U.S. presidential election?

It's important to remember that this is not a national campaign but 50 simultaneous state elections - and the outcome for 40 of them can be predicted with some accuracy. This year, election observers shouldn't obsess over national unemployment figures. The key is to watch economic and political indicators in the 10 states that are closely contested: Ohio, Florida, Pennsylvania, Nevada, Colorado, Iowa, Virginia, North Carolina, New Hampshire and Wisconsin.

Many of the swing states are doing better economically than the country as a whole. Ohio, for example, has a 7.2 percent unemployment rate, more than a point below the national average. And recent polls in several swing states show Obama running ahead of his national polling margins.

The biggest threat to Obama is a late surge for Mitt Romney, which could be precipitated by a collapse in the euro zone and further weakening of the domestic economy. In a bad economy, late-deciding voters often break for a credible challenger, so Obama's team needs to establish a large lead now, before any further economic weakening. Presidents who fail to set the tone early usually end up losing, as Presidents Jimmy Carter and George H.W. Bush did.

So, yes, "it's the economy, stupid." But this year, it's an economy that stretches from local indicators in just 10 key states to the threat of national and perhaps global economic weakening. Obama needs to hope that the swing-state economies at least stay stable and that any bad news from abroad waits until after Nov. 6.

Sources:

GDP growth:
U.S. Bureau of Economic Analysis 

Unemployment rate:
U.S. Bureau of Labor Statistics

Percent unemployed for more than 26 weeks:
U.S. Bureau of Labor Statistics

Disposable personal income:
U.S. Bureau of Economic Analysis

Consumer inflation rate:
U.S. Bureau of Labor Statistics

Dow Jones Industrial Average:
Yahoo! Finance

Consumer sentiment:
Reuters/University of Michigan survey of consumers

Consumer spending:
U.S. Bureau of Economic Analysis

Months' supply of new homes:
U.S. Census Bureau

Interest rate on 30-year fixed mortgage:
Freddie Mac

Metro area employment rates:
U.S. Bureau of Labor Statistics

Metro area home price growth:
Case-Shiller Index

U.S. combat fatalities, Afghanistan:
icasualties.org

Civilian fatalities, Iraq:
Brookings Iraq Index

Approval ratings of president and Congress:
Gallup

Percent of Americans "satisfied with the way things are":
Gallup

      

 

 

Index #11: Last Five Quarters

Anxiety about a double-dip recession has dissipated with the arrival of better economic indicators, but the economy's overall weakness - and what to do about it - is likely to dominate the news this week with the release of President Obama's budget proposal, just as it monopolized his State of the Union address and the 19 Republican presidential debates. In the 11th "How We're Doing Index," a team of scholars at the Brookings Institution looks at the past five quarters to chart the recent improvements - and determine the likelihood of policy responses ahead of the election. A key factor in November is going to be whether voters focus on the end result of high unemployment and large budget deficits, and how they evaluate the competing theories of why the economy has not done well. But for at least the next few months, non-political actors - particularly the Fed - will be the primary sources of changes in economic policy. Continue reading below chart »


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In the fourth quarter, real gross domestic product expanded at its fastest rate since mid-2010, and employment conditions strengthened. Consumer spending increased at a solid clip and the housing sector showed some faint signs of life, with a decrease in the glut of houses that are keeping prices down. Builder confidence rose and climbed further in more recent weeks to its highest level since June 2007, well before the recession began.

Notwithstanding these improvements, the unemployment rate has stayed above 8 percent for three years. Long-term unemployment has decreased but remains at a near-historic high. There are dangers beyond the hardships this imposes on those individuals directly affected. Skills erode as workers spend time unemployed, making it harder for them to find new jobs.

Meanwhile, policymakers in Washington have limited options to support the economy. Between the political gridlock and the coming elections, it is very unlikely significant legislation will be passed before November. Accordingly, the administration has focused on executive action, especially regarding housing. Last fall Obama officials announced a ramped-up effort to allow more "underwater" borrowers to refinance their mortgages at lower rates. More recently, the administration's foreclosure prevention program was expanded: Eligibility was broadened and incentive payments to banks that reduce the principal balance on loans to troubled borrowers were increased. Additional tools for foreclosure prevention - such as forgiveness of mortgage debt - are part of a settlement announced Thursday between state and federal officials and the largest U.S. banks involved with servicing mortgages whose borrowers subsequently defaulted.

The Federal Reserve could take steps to further boost demand. Fed leaders indicated in January that they expect to keep the federal funds rate - its traditional policy tool - close to zero until late 2014. Given the Fed's stated expectation that the unemployment rate will decline only gradually, combined with its expectation that inflation will remain at or below the desired target, the Fed could soon attempt to stimulate the economy through unconventional measures such as further purchases of mortgage-backed securities or Treasury bonds. This policy is designed to ease financial conditions in ways that stimulate investment, exports and consumer spending.

But these complicated issues barely register in the dynamic of the 2012 election. In the Republican primaries, a surprising debate has emerged about the merits of capitalism - a narrative that temporarily eclipsed the discussion of whether President Obama's economic policies have made the economy better or worse. Given the volatility of the Republican nominating process so far, several political surprises are likely along the road to Election Day.

Sources:

GDP growth:
U.S. Bureau of Economic Analysis 

Unemployment rate:
U.S. Bureau of Labor Statistics

Percent unemployed for more than 26 weeks:
U.S. Bureau of Labor Statistics

Disposable personal income:
U.S. Bureau of Economic Analysis

Consumer inflation rate:
U.S. Bureau of Labor Statistics

Dow Jones Industrial Average:
Yahoo! Finance

Consumer sentiment:
Reuters/University of Michigan survey of consumers

Home price index:
CoreLogic

Builder confidence index:
National Association of Home Builders

HAMP modifications:
U.S. Treasury Department

Consumer spending:
U.S. Bureau of Economic Analysis

Months' supply of new homes:
U.S. Census Bureau

Interest rate on 30-year fixed mortgage:
Freddie Mac

Metro area employment rates:
U.S. Bureau of Labor Statistics

Metro area home price growth:
Case-Shiller Index

U.S. combat fatalities, Iraq and Afghanistan:
icasualties.org

      

 

 

Index #10: Last Five Quarters

Concerns about the economy have escalated since mid-summer, with consumer confidence plummeting, approval ratings for Congress and the president sagging, and dramatic protests arising in New York and other major cities. In the tenth "How We're Doing" Index, a team of scholars at the Brookings Institution has looked at the past five quarters to assess the trends behind this public discontent. Continued weakness in the U.S. economy and the global concerns that preoccupied the recent Group of 20 meeting have had effects at the national and local levels. Continue reading below chart »


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U.S. gross domestic product rose at a solid 2.5 percent in the third quarter, driven by gains in consumer spending, but the national unemployment rate remained at a dismal 9.1 percent. Disposable personal income fell, and consumer confidence declined to its lowest level since early 2009. According to Gallup polling, the percentage of Americans who say they are satisfied with the way things are sunk to a two-year low of 13 percent.

In contrast, emerging economies have been resilient, making international trade - especially with China - a flash point in Congress and the Republican presidential debates. The Senate recently passed legislation that could impose higher tariffs on some Chinese products, and China announced new commitments on currency flexibility at the G-20 meeting. A meaningful appreciation of the yuan could, in fact, facilitate trade rebalancing between China and the United States. So far, strong growth in China and India has driven the International Monetary Fund's projection of a still-high rate of growth (4 percent) for the global economy this year.

In Europe, the picture is more complicated. The market turmoil that started as a fiscal and banking crisis in a few peripheral countries now threatens the continent's larger economies. A new unity government in Greece will be tasked with implementing the provisions of a rescue package that will impose unpopular austerity measures, while Italy is forming an emergency cabinet to carry out, under IMF monitoring, tough policy measures to stabilize market pressure. It remains unclear whether these steps will be enough to reverse the crisis and prevent harmful ripple effects in the United States and elsewhere. It was made clear in Cannes that the Europeans still need to clarify important aspects of their strategy.

One potential impact on the U.S. economy as Europe's growth falters is declining exports. Thanks in part to a depreciating dollar, U.S. trade deficits with Europe, Asia and Latin America have expanded in the past year. Local economic trends reflect the diverging fortunes of our international trading partners. In Indianapolis, a hub for U.S. pharmaceutical exports to Europe, the industry has shed a significant number of jobs over the past year. In Allentown, Pa., by contrast, jobs in basic chemical manufacturing are growing again thanks to strong demand from Latin America. In Silicon Valley, rising computer and electronic exports to Asia fueled that industry's 7 percent job growth in the third quarter.

These national and local dynamics should highlight priorities for federal, state and local policymakers. National leaders still need to reach a budget accord and revitalize the current account rebalancing agenda agreed upon by the G-20 by stepping up pressure on China to increase its net imports and follow through on its commitments. They also need to continue to press the Europeans to address a crisis that may further slow badly needed investment and job creation.

Local officials, meanwhile, should collaborate with business and civic leaders to enhance export-related services and infrastructure, to help their firms better connect to faster-growing foreign markets. At the moment, the United States must look abroad to sustain and accelerate its still-fragile economic recovery.

Sources:

GDP growth:
U.S. Bureau of Economic Analysis 

Unemployment rate:
U.S. Bureau of Labor Statistics

Disposable personal income:
U.S. Bureau of Economic Analysis

Consumer inflation rate:
U.S. Bureau of Labor Statistics

Dow Jones Industrial Average:
Yahoo! Finance

Average price of oil:
Energy Information Administration

Consumer sentiment:
Reuters/University of Michigan survey of consumers

Small business optimism:
NFIB Small Business Optimism Index

Consumer spending:
U.S. Bureau of Economic Analysis

Months' supply of new homes:
U.S. Census Bureau

Interest rate on 30-year fixed mortgage:
Freddie Mac

Metro area employment rates:
U.S. Bureau of Labor Statistics

Metro area employment by industry:
Brookings analysis of Moody's Analytics,U.S. Bureau of Economic Analysis, and U.S. International Trade Statistics data.

Metro area home price growth:
Case-Shiller Index

International trade data:
U.S. International Trade Commission

U.S. combat fatalities, Iraq and Afghanistan:
icasualties.org

      

 

 

Index #9: Last Five Quarters

As the dust settles from the partisan fight over the debt ceiling, the recovery continues to falter, the labor market remains weak, the stock market is volatile and the public mood is increasingly pessimistic. In the ninth "How We're Doing" Index, a team of scholars at the Brookings Institution has looked at the past five quarters to assess the state of our political and economic conditions. Facing a real risk of recession, and with the Iowa caucuses only six months away, the impact on the 2012 elections of macroeconomic performance and three military conflicts loom large. Continue reading below chart »

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Real growth in gross domestic product was barely above 1 percent in the second quarter of 2011, and first quarter GDP was just 0.4 percent. This anemic pace is not enough to significantly dig out of the loss of nearly 9 million jobs from the recent recession. After peaking at 10.1 percent in October 2009, the unemployment rate remains stubbornly high, at more than 9 percent, and average duration of unemployment also remains persistently high.

The housing sector has often led the way out of past downturns, but home prices have slipped further nationwide over the past year, with metropolitan areas in Nevada, Florida, and California remaining among the hardest hit. Consumers are pessimistic, with confidence in July slumping to its lowest level since early 2009, and the National Federation of Independent Business's "optimism index" for small businesses is down again after two quarters of small increases.

The foreign policy situation remains difficult as well. U.S. combat fatalities rose in both Iraq and Afghanistan during the second quarter, although the situation has since improved.

After lengthy, tense negotiations between Congress and the White House over raising the debt ceiling and reducing the federal budget deficit, public confidence in government is low. Barely one in five voters says he or she is satisfied with the way things are going in the United States, according to Gallup polling. Neither party generates much confidence, although twice as many voters approve of the job being done by President Obama compared to Congress. Republicans and Democrats remain far apart in their preferred policies, which makes the task of practical problem solving very challenging for elected officials.

Against this backdrop of weak performance, the 2012 elections are taking shape. In past elections, Democrats have often sought to emphasize domestic economic circumstances, while Republican candidates emphasized foreign policy and national security. In the upcoming cycle, though, we may see the parties switching roles as the GOP highlights high unemployment and weak economic growth, and the president campaigns on his policy of scaling back involvement in unpopular wars in Iraq and Afghanistan.

So far, there are nine Republicans likely to seek to replace Obama, but the president does not have opposition in the Democratic nominating process. Historically, presidents who have not faced a primary challenge are more likely to win reelection. That was the case with Ronald Reagan, Bill Clinton and George W. Bush, but the unemployment rate was lower when each of them sought a second term. No president since Franklin Roosevelt has been re-elected -- or even run for re-election -- with unemployment over 8 percent.

Sources:

GDP growth:
U.S. Bureau of Economic Analysis 

Unemployment rate:
U.S. Bureau of Labor Statistics

Average weeks unemployed:
U.S. Bureau of Labor Statistics

Disposable personal income:
U.S. Bureau of Economic Analysis

Consumer inflation rate:
U.S. Bureau of Labor Statistics

Dow Jones Industrial Average:
Yahoo! Finance

Average price of oil:
Energy Information Administration

Consumer sentiment:
Reuters/University of Michigan survey of consumers

Small business optimism:
NFIB Small Business Optimism Index

Consumer spending:
U.S. Bureau of Economic Analysis

Months' supply of new homes:
U.S. Census Bureau

Interest rate on 30-year fixed mortgage:
Freddie Mac

Metro area employment rates:
U.S. Bureau of Labor Statistics

Metro area home price growth:
Case-Shiller Index

U.S. combat fatalities, Iraq and Afghanistan:
icasualties.org

      

 

 

Index #8: Last Five Quarters

The past few months have reminded Americans that progress can mean two steps forward and one step back. The death of Osama bin Laden has lifted President Obama's approval ratings - temporarily - but also increased fears of a retaliatory attack on U.S. soil. Economic recoveries abroad are bringing job growth - and higher oil prices. In the eighth "How We're Doing" Index, scholars at the Brookings Institution looked at the past five quarters and found an uneven economic recovery that is much different in Detroit than in Tampa - and quite dissimilar in Athens and Beijing.<not-mobile message=""> Continue reading below chart » </not-mobile>

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Index #7: Last Four Decades

In the past month, President Obama has pressed the autocratic president of our most important Arab ally to heed the demands of his people and step down, established a workman-like relationship with China's president, and delivered a State of the Union address that sought to "win the future." Taken together, these critical events highlight the complexity of America's global leadership dilemma: whether to cooperate or to compete; whether to partner with some autocrats while pressuring others. Over the past three decades, American presidents have found their ability to deal with these dilemmas affected by the shifting balances of relative power in the international system. In the seventh "How We're Doing" Index, experts at the Brookings Institution explored some of the key data behind our leading partners and competitors.  <not-mobile message="">  Continue reading below chart » </not-mobile>

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Index #6: Last Five Quarters

Two days before voters go to the polls, uncertainty—both economic and political —remains the watchword. The strength of the recovery is in question, as the economic growth spurt of late 2009 and early 2010 appears to have given way to a slog. In the sixth “How We’re Doing” Index, a team of Brookings experts has looked at the past five quarters to assess data that underpin the national gloom. With midterm elections historically hard on the president’s party when voters are worried about economic circumstances, the Republican Party may regain control of Congress—but on major issues of policy, uncertainty is likely to linger.  <not-mobile message="">  Continue reading below chart » </not-mobile>

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Index #5: Last Five Quarters 

Political polarization has risen, the economy is shaky and some states are on the brink of fiscal collapse. In the fifth “How We’re Doing” Index, a team of scholars at the Brookings Institution has looked at the past five quarters to ascertain what factors might trigger a major shake-up in November.

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Index #4: Last Five Quarters

With the worst of the credit crunch of 2008-09 behind us, U.S. economic activity has been improving since last summer. Greece’s recent fiscal problems, however, have sparked serious concerns about global credit markets. A central lesson of the financial crisis is that disruptions in credit markets can damage the broader economy. In the fourth “How We’re Doing” Index, a team of scholars at the Brookings Institution has looked at the past five quarters to determine where U.S. credit markets stand and what strains may arise from long-term fiscal imbalances.<not-mobile message="">  Continue reading below chart » </not-mobile>

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» Index #1: A Composite Index of Global and National Trends »
» Index #2: What's Blocking the Recovery? »
» Index #3: How We're Doing in the World »

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