Obama Prospects Improve as Swing State Economies Improve

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From extra shifts at auto and steel plants in Ohio to office buildings rising in Northern Virginia, the geography of the U.S. economic rebound is providing an edge to President Barack Obama’s re-election.

The unemployment rates in a majority of the 2012 battleground states are lower than the national average as those economies improve. Coupled with the growth of adult minority populations in those states, the trends create a higher bar for presumed Republican Party presidential nominee Mitt Romney in his quest to unseat Obama.

“There are jobs out there,” said Chris McGiffen, 47, of Zanesville, Ohio, who moved to the state in 2010 from St. Louis to look for work. He found a job as a welder at Columbus Castings, a steel foundry that makes products such as undercarriages for railroad cars, he said.

Nine states switched from supporting Republican President George W. Bush in 2004 to Democrat Obama in 2008. Leaving out Indiana, which both sides say is leaning Republican after supporting Obama four years ago, the remaining eight are again shaping up as the central election battleground.

Those eight states -- Colorado, Florida, Iowa, Nevada, New Mexico, North Carolina, Ohio and Virginia -- have a combined 101 electoral votes. Romney must win at least 79 of those electoral votes to prevail if all other states run true to their 2004 and 2008 partisan preferences.

Must Take Florida

Obtaining those 79 electoral votes is a daunting task for Romney, in part because it is impossible for him to achieve without claiming Florida. Winning all the other states would still leave him seven votes short. And even with Florida, losing Ohio and any one of the other smaller states -- New Mexico, Iowa or Nevada -- keeps him shy of the 79 figure.

Local economies are “important,” said Xu Cheng, a senior economist at Moody’s Analytics. A model that Moody’s developed based solely on state-by-state economic data and past voting behavior forecast the outcome in 2008, he said.

A projection Moody’s made May 21 based on the model predicts an Obama victory with 303 electoral voters, with the Democrat carrying Ohio and Virginia and the Republican winning Florida. The economic data for the remainder of the year comes from Moody’s state-by-state forecasts.

An external shock to the economy such as a disorderly European debt default or a Middle East conflict that spikes oil prices could upend the state-by-state economic projections and alter the electoral forecast, Cheng said.

Growth Forecast

The Moody’s national forecast is on the optimistic side of private economists, anticipating 2.86 percent growth in the 3rd quarter versus a median of 2.4 percent among economists surveyed by Bloomberg.

A key threshold in how states vote in presidential elections is 8 percent unemployment -- about the level of the national jobless rate in April -- according to a Moody’s analysis that examined results going back to 1980.

The incumbent president gets only about half as much credit for improvements in the economy when the local unemployment rate is above 8.0 percent, the Moody’s analysis found. Economists there have dubbed the finding “the grumpy voter effect.”

Five of the Bush-turned-Obama states had lower unemployment rates in April than the 8.1 percent national average, and in three of the states joblessness had dropped below 7 percent.

Nationally, polls show a tight race. Obama leads Romney 47 percent to 43 percent among registered voters, according to an NBC News/Wall Street Journal poll conducted May 16-20 with a margin of error of 3.4 percentage points.

Ohio Economy

In Ohio, the state’s economy followed the roller coaster of the auto industry to a deeper recession than elsewhere and a stronger recovery.

Unemployment in the state dropped to 7.4 percent in April, also aided by a rebound in steel, growth in other manufacturing industries and a surge in oil and natural gas development through the use of “fracking” technology.

Honda Motor Co. (7267) added a shift at its plant in Marysville, Ohio, at the beginning of the year and Chrysler Group LLC announced plans this month to skip an annual two-week summer shutdown at its Toledo, Ohio, Jeep Wrangler production line to keep up with demand. Vallourec SA’s V&M Star is building a $650 million steel pipe mill in Youngstown, Ohio, to supply drilling into the Utica and Marcellus shale formations.

“Unemployment is still high but there are spot skill shortages starting to show up,” said Edward Hill, dean of the Levin College of Urban Affairs at Cleveland State University. Truck drivers, medical technicians and industrial electricians are among the occupations in demand, he said.

Minority Voting Population

The portion of eligible voters in Ohio who are African- American also is slightly higher than the last presidential election, up 1 percentage point in 2011 from three years earlier, according to an analysis of census data by William Frey, a demographer at the Brookings Institution in Washington.

Virginia, a state that went Democratic for the first time since 1964 in backing Obama, has been sustained throughout the recession by federal government contracts, particularly military procurement. Unemployment never rose above 7.3 percent and had dropped to 5.6 percent in April.

Technology businesses in the state nurtured by federal contracts are also expanding into commercial ventures and work for foreign governments, said Stephen Fuller, director of the Center for Regional Analysis at George Mason University in Arlington, Virginia.

Virginia Housing Market

In the suburbs of Washington in Northern Virginia, the real estate market is rebounding, with home values in some areas at or near the peak of the housing boom and new office construction continuing, Fuller said. New York-based Monday Properties broke ground in 2010 on a 35-story tower in Arlington, Virginia, that will be the tallest building in the capital region.

The percentage of racial minorities, who voted heavily for Obama in 2008, in Virginia had risen by 3 percentage points in 2011.

The Iowa economy is humming along at 5.1 percent unemployment, with its large agricultural sector boosted by record national farm profits last year. Demand for agricultural equipment manufactured in the state also has been rising in emerging economies. Deere & Co. (DE) announced a $70 million expansion of its tractor production facility in Waterloo, Iowa, on March 1.

New Mexico Energy

New Mexico, bolstered by ties to energy production, also avoided the worst of the recession, with unemployment down to 6.9 percent in April. Job opportunities in Colorado are slightly better than the national average, with 7.9 percent unemployment.

Florida, the largest of the swing states with 29 electoral votes, has been buffeted by the housing crisis and presents Romney with an opportunity to take a state from Obama’s 2008 column.

After a frenzy of construction during the housing boom, the oversupply of homes has been a drag on the local recovery and sapped the wealth of homeowners. At the end of last year, 44 percent of all mortgaged homes in Florida were worth less than the loan balance, according to CoreLogic.

“That lost wealth in home equity is a pretty heavy burden,” said Sean Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida in Orlando.

The national housing bust also has cut the flow of retirees to Florida, a traditional source of growth for the state, Snaith said.

Florida Retiree Migration

While affluent retirees whose wealth is concentrated in financial assets such as stocks and bonds have resumed migrating to Florida, “the average Joe and Jane retiree has to sell a house up north to finance a move,” he said.

Still, joblessness has been declining more rapidly in Florida than elsewhere, with the 8.7 percent April unemployment rate down from a peak of 11.4 percent in February 2010.

The state’s tourism industry has benefited from pent-up demand for more vacation travel as the economy has recovered. International travelers, especially from South America and Brazil’s expanding middle class, also are coming to Miami and South Florida in growing numbers, Snaith said.

Population shifts in Florida since 2008 benefit Obama, with blacks and Hispanics each accounting for an additional 1 percent of the state’s eligible voters by 2011, according to Frey’s analysis.

Nevada Casinos

Nevada, another state that boomed during the real estate bubble, has been the hardest hit by the housing crisis. At the end of last year, the state led the country in the portion of homeowners with underwater mortgages, with more than 61 percent of properties worth less than the loan balance, according to CoreLogic.

Still, the broader economy in the state is improving. Like Florida, the state’s tourism and casino businesses have rebounded as the national economy improves.

Though Nevada had the highest unemployment rate in the nation in April at 11.7 percent, the drop over the past year has been more than twice as large as elsewhere. A year earlier, the state’s jobless rate was 13.6 percent.

Minority groups’ share of eligible voters in Nevada was up 4 percentage points by 2011. That demographic movement toward Obama, mostly driven by its growing Hispanic population, is “the biggest change in a swing state” Frey said.

North Carolina, the battleground Obama chose to host the Democratic nominating convention this year, is lagging the national economic recovery. The unemployment rate was 9.4 percent in April.

Charlotte-based Bank of America Corp., one of the state’s largest employers, last year announced plans to fire 30,000 workers worldwide. The state’s pulp, furniture and chemical industries have been hampered by “very strong competition” from abroad, said Cheng, the Moody’s economist.

To contact the reporter on this story: Mike Dorning in Washington at mdorning@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net

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