Pessimism about the economy’s prospects threatens to derail President Barack Obama’s bid for a second term if history is any guide, according to Barry Knapp, head of U.S. equity strategy at Barclays Plc’s securities unit.
As the CHART OF THE DAY illustrates, a Thomson Reuters/ University of Michigan index of consumer expectations dropped below 50 last year. Similar readings occurred before the last three times that a president lost a re-election campaign, as Knapp wrote in a note to clients yesterday.
The index “is perhaps the most effective at determining the strength of the president’s support on the key issue of the economy,” the New York-based strategist wrote. It’s designed to assess the outlook for the next six months. Any gains in stocks through year-end may depend on whether the election’s outcome bodes well for economic growth, the report said.
Last August, the indicator dropped to 47.4. The figure was the lowest since 1980, when Jimmy Carter sought another term and lost to Ronald Reagan. During Carter’s time in office, the index slid below 50 three times.
Carter’s earlier victory against Gerald Ford followed an index reading of 50 in 1975, when the U.S. was in a recession. The chart depicts each period in which the economy contracted.
Another recession occurred during George H.W. Bush’s time as president. The index fell as low as 50.9 while Bush was in office, and the decline preceded his re-election loss to Bill Clinton in 1992.
Additionally, the expectations gauge dropped to 49.2 in 2008, when Obama enabled the Democratic Party to re-take the White House after Republican George W. Bush’s two terms.
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