Democrats' Midterm Election Fortunes May Be Measured in Disposable Incomes

Two years ago, before his trucking business failed for lack of freight to haul, Roman Dmytriv and his wife voted for Barack Obama. This fall, they say, they probably won’t bother casting ballots at all.

“For some reason, we believed him. I feel a little bit cheated,” said Dmytriv, 43, of Freehold, New Jersey, who now works in information technology. “I live from paycheck to paycheck,” he said.

Never mind the unemployment rate.

For omens of the midterm congressional election results, watch the amount of money going into people’s pockets. In the language of economists, that’s real disposable personal income per capita -- and the numbers aren’t encouraging for Democrats.

Measured by disposable income, the U.S. standard of living has been stagnant since Obama took office in January 2009, giving Democrats control of the executive and congressional branches of government. Adjusted for inflation, per capita income went unchanged in 2009.

The only calendar years with declines in income during the past two decades were 2008, when former President George W. Bush was finishing his second term, and in 1991, the year before then-President George H.W. Bush lost re-election. Even lackluster growth is usually hard on incumbents. Over the past decade, annual growth has averaged 1.6 percent.

Past Campaigns

“Unemployment was falling when the first George Bush was running for re-election, and it did not stop us from running on ‘It’s the economy, stupid,’” said Stan Greenberg, a Democratic strategist and former pollster for President Bill Clinton, who won the White House in 1992.

“Same thing in 1994: the unemployment rate fell, but we got killed on the economy because incomes did not rise,” said Greenberg, referring to the Republican takeover of the House and Senate in that year’s midterm elections.

It wasn’t until 1995 that the average after-tax income for the bottom 90 percent of all American wage-earners returned to its 1992 level, according to Internal Revenue Service data.

In Nevada, where polls have shown Democratic Senate Majority Leader Harry Reid running behind in his reelection bid, the plunge in the construction and hotel industries drove down per capita personal income last year by 5.8 percent, the sharpest decline of any state other than Wyoming, according to the Commerce Dept.’s Bureau of Economic Analysis. The state- level data is not adjusted for inflation.

Economic Trends

Most economic forecasters see job gains ahead and some decline in the unemployment rate before the November election. The overall economy has been growing since the middle of last year, and despite the recent tumult in the market, stock prices are up since Obama took office. Personal incomes typically take longer to rise in an economic recovery.

Heading into the elections, real disposable income per capita will only be up “a very anemic” 0.4 percent from a year earlier, forecasts Moody’s Economy.com chief economist Mark Zandi. “That suggests for many households after-tax income is still declining,” Zandi said.

Income growth has been the best economic predictor of U.S. presidential election results since 1952, said Douglas Hibbs, a former government professor at Harvard University in Cambridge, Massachusetts, and economics professor at Sweden’s Gothenburg University. Hibbs tested a “Bread and Peace” model based solely on per-capita real disposable personal income growth and fatalities in foreign wars against a range of models using other economic data.

“It’s the broadest measure of economic well-being,” said Hibbs of disposal income growth. “It has a very, very powerful effect.”

Computer Model

Ray Fair, an economics professor at Yale University in New Haven, Connecticut, who has developed a computer model to forecast congressional elections based on the performance of gross domestic product and inflation, believes Democrats face significant losses this fall. Fair predicts the Democrats’ share of the two-party vote for House candidates will fall to 50.43 percent from 53.4 percent in 2008.

Even that projection depends on an optimistic forecast that Fair uses for GDP growth. Using the median forecast of economists surveyed by Bloomberg, the model’s prediction for the Democratic vote share would drop lower, to 49.22 percent, increasing the risk that the party will lose control of the House.

‘Sense of Anxiety’

“Most people are aware of only two big things: whether they can pay their bills and whether their job is reasonably safe,” said Robert Reich, a professor of public policy at the University of California at Berkeley who served as labor secretary in the Clinton administration. “The underlying reality that people live with is their sense of anxiety about paying the bills.”

While it may be difficult to appreciate after a jarring recession, job security is improving for most Americans. In February, more workers quit their jobs than left involuntarily for the first time since November 2008, a trend that has continued, according to the Labor Department.

The pace of layoffs has slowed steadily after reaching a peak in January 2009. Since February of this year, discharges of employees have been running below their average historical level since the Labor Department began compiling the data in 2000.

Slow to Hire

Unemployment has remained high because companies have been slow to hire new workers. And the other trends aren’t enough to ease people’s job concerns, said Dennis Jacobe, chief economist for the Gallup Poll.

“Perceptions will take a long time to turn around because they’ve been built up over two years,” he said. “We have to see some significant hiring. Just stopping the layoffs is not enough.”

Americans’ jitters about the economy have been underscored by the public response to the Greek debt crisis and the ensuing market tumult. While the results of Gallup’s weekly economic confidence survey had been steadily creeping upward since mid- March, it plunged and gave up half its gain for the week ending May 23, Jacobe says.

Greenberg said Democrats can improve their electoral chances by portraying the economy as being in the midst of an “ongoing crisis” inherited from the last administration and by focusing attention on efforts to bolster the middle class.

Contending that it’s “demonstrably ineffective” for the White House and Democratic leaders to claim credit for progress on the economy, Greenberg said the party’s candidate “should not run on the condition of the economy. They should run on what they’ve done to get the economy moving in the right direction and help the middle class through this crisis.”

For Related News and Information: Stories on the U.S. economy: TNI US ECO <GO> News on U.S. consumers: TNI US CONS <GO> To chart per capita real disposable income: PIDSDPCW <Index> GP <GO> To chart the unemployment rate: USURTOT <Index> GP <GO> News search on the recession: STNI USRECESSION <GO> On the credit crisis: NI CRUNCH BN <GO> Government relief programs: GGRP <GO> Top government stories: TOP Stories on TARP: TARP <GO> Winners, Losers in TARP: BTCPP <Index> MRR4 <GO> U.S. Economic Forecasts: ECFC <GO> Federal Reserve monetary policy: FOMC <GO> To Graph the Budget Deficit: FDEBTY <Index> GP <GO>

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