Aug. 15 (Bloomberg) -- President Barack Obama begins a three-day trip to the Midwest seeking to reassure anxious voters that he has a plan to prop up the ailing economy when his ability to deliver on the necessary prescriptions is anything but certain.
Obama arrived today in Minnesota at one of the most challenging junctures of his presidency. A worsening economic outlook, Standard & Poor’s first-ever downgrade of the U.S. credit rating, risks of a spillover effect from Europe’s debt crisis and volatility in global markets are drawing comparisons to the beginning of the 2008 financial crisis and confronting Obama with a confluence of forces over which he has little control.
With some Democrats pushing for bolder action to spur growth and Republicans showing no appetite for additional stimulus that would add to the deficit, the president’s mission for now is twofold: encourage consumers to keep spending and boost business confidence so companies will invest in new jobs. Success may mean the difference between a slow recovery and a double-dip recession.
“The economy could go either way, and at these kinds of turning points, confidence is key,” said Gus Faucher, director of macroeconomics at Moody’s Analytics. “It’s the administration’s hope that if the president is out there, talking up the economy, it will prevent a downturn.”
Familiar Talking Points
Obama mostly will be reiterating a familiar set of plans: renewal of a two-percentage-point cut in the payroll tax for workers and extended unemployment benefits, both set to expire Dec. 31; establishment of an infrastructure bank to fund public works spending; ratification of free-trade deals; and overhauling patent law.
“We’re obviously looking at other options,” White House press secretary Jay Carney told reporters aboard Air Force One before Obama landed.
The administration is also considering proposals such as incentives for companies to take on workers, including a cut in the payroll tax for employers, said a person familiar with the discussions. Last week the administration announced new steps to address the housing crisis by seeking ideas from investors to rent, sell or dispose of foreclosed homes controlled by the government.
“I don’t think he can be in a mode of ‘we’re going to try to compromise and figure out what Republicans will let us do,’” said Jared Bernstein, who was Vice President Joe Biden’s chief economic adviser until April. “He’s go to come out fighting hard.”
The unsettled economy was reflected in last week’s record swings for the Standard & Poor’s 500 Index and a mixed assortment of economic news. The S&P 500, which fell or rose at least 4.4 percent in the previous four sessions, climbed 0.5 percent to 1,178.8 Aug. 12 in New York. Today the benchmark index advanced 1.6 percent to 1,197.59 at 10:36 a.m. in New York.
The Commerce Department reported last week that U.S. retail sales climbed 0.5 percent in July, the most in four months, showing consumers were holding up at the start of the third quarter. Still, the Thomson Reuters/University of Michigan preliminary index of consumer sentiment for August slumped to 54.9, the lowest since May 1980, from 63.7 the prior month.
Obama’s trip, which also includes stops in Iowa and in his home state of Illinois, comes as the administration is trying to pivot away from the months-long fight to raise the federal debt limit, which concluded on Aug. 2, and regain the political initiative.
The state of the economy and the size of the nation’s long-term debt will be central issues in the 2012 presidential campaign, and voters are growing increasingly frustrated with the government. Obama sets out with 39 percent of Americans saying they approve of his job performance in Gallup Inc.’s tracking poll for Aug. 11-13, the lowest approval rating of his presidency. Fifty-four percent of respondents disapproved.
“The country is in an unbelievably angry mood,” said Democratic pollster Stanley Greenberg. “You are dealing with a turn away from Washington, from politicians in general.”
An Aug. 9 Washington Post survey found that 71 percent of Americans said the federal government is mostly focused on the wrong things and 78 percent said they were dissatisfied with the way the country’s political system is working. The poll has a margin of error of plus or minus 4.5 percentage points.
Obama last week sought to tap into that sentiment.
“There’s nothing wrong with our country,” he said Aug. 11 at a Holland, Michigan, factory of Johnson Controls Inc., the largest U.S. auto supplier. “There is something wrong with our politics.”
Urging his audience to pressure their congressional representatives, he said that some lawmakers “would rather see their opponents lose than see America win.”
Obama’s options to stimulate the economy are limited given the firm resistance by Republicans in Congress to new spending.
“There’s very limited maneuvering room,” Faucher said. “There are lots of things he could push that would help the economy, but aren’t going to get through Congress.”
In the two swing states Obama is visiting that are important for his re-election, the unemployment rate is below the national average of 9.1 percent: Minnesota stands at 6.7 percent and Iowa’s is 6 percent. The jobless rate in Illinois is 9.2 percent.
The campaign-style bus tour is Obama’s first since becoming president. And while Iowa was the launching pad for his run to the Democratic nomination -- and eventual election as president -- in 2008, this time he’ll be confronting more skepticism.
“What was a smiling crowd of enthusiastic people who voted for him and created magic for him is no longer smiling,” said Steffen Schmidt,’’ a political science professor at Iowa State University in Ames, who also suggested Obama’s theme song for the Iowa trip be “Help!” by the Beatles.
Obama will be in the state as the Republicans vying for their party’s presidential nomination have spent the last week targeting him and his policies in the run-up to a straw poll in Ames.
“People in Iowa sent a message loud and clear to President Obama,” U.S. Representative Michele Bachmann of Minnesota, winner of the Aug. 13 contest, said yesterday on CNN’s “State of the Union” program. “They said, ‘We are done with your policies. We want something very different.’”
Since World War II, no U.S. president has won re-election with a jobless rate above 6 percent, with the exception of Ronald Reagan, who faced 7.2 percent unemployment on Election Day in 1984. The administration’s own forecast, matched by private economists, is for a jobless rate of more than 8 percent in the last quarter of next year.
Still, there are almost 15 months until the election and it’s the economic conditions next spring that matter most for the incumbent president, pollsters say. Ultimately, voters want to see a trend of things starting to get better and the election will be a referendum on Obama’s ability to see that through.
“If nothing else happens, it goes on the negative side of the referendum,” said Robert Blendon, a professor of health policy and political analysis at Harvard University in Cambridge, Massachusetts. “If there are positive signs that come in the next three or four months, then it will have much less effect.”
“Voters can’t do much,” he said. ‘All they can do is change who’s in the job.’’
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