Obama Momentum Slowed by Jobs Report That May Spur Stimulus
President Barack Obama, a day after getting his highest approval rating in more than a year, was confronted by a worse-than-expected slowdown in the job market that threatened to undercut enthusiasm for his re-election.
About 12 hours after Obama took the stage at the Democratic National Convention in Charlotte, North Carolina, to accept the party’s nomination for a second term as president, Republican nominee Mitt Romney seized on the labor data, underlining the challenge the economy presents for the administration.
“The timing couldn’t be worse for the president in terms of coming out of a really good convention with some momentum,” said Stu Rothenberg, editor of the nonpartisan Rothenberg Political Report in Washington. “This just steps on that bounce, and I think it’s a big problem for the Democrats.”
Yesterday’s U.S. Labor Department report drove the political debate as both candidates campaigned in the swing states of Iowa and New Hampshire. The figures showed the economy added 96,000 jobs in August, down from a revised gain of 141,000 in July and fewer than forecast. While the unemployment rate fell to 8.1 percent from 8.3 percent in July, the report showed 368,000 Americans left the job market and the share of the working-age population in the labor force slumped to 63.5 percent, the lowest since 1981.
The numbers also sparked renewed speculation about additional stimulus from the Federal Reserve, which holds its next meeting Sept. 12-13.
Federal Reserve Chairman Ben Bernanke said in an Aug. 31 speech in Jackson Hole, Wyoming, that the stalled labor market is “a grave concern” and threatens to “wreak structural damage on our economy that could last for many years.”
The central bank chief said stimulus options include extending the Fed’s pledge to hold the main interest rate near zero through at least late 2014 and buying bonds in a third round of so-called quantitative easing to reduce interest rates.
Boston Fed President Eric Rosengren and three other regional bank presidents have called for an “open-ended” approach to bond buying, in which the central bank would announce an amount of monthly purchases that would continue until the economy sufficiently improves.
Mohamed El-Erian, co-chief investment officer of Pacific Investment Management Co. in Newport Beach, California, said job creation averaging less than 100,000 over the last three months, no growth in average hourly earnings, a decline in labor force participation and rising teenage unemployment probably will prompt the Fed to act.
“Put all that together and it triggers the need for a policy response,” El-Erian said in a Bloomberg Television interview.
Stocks advanced yesterday with the Standard & Poor’s 500 Index (SPX) rising 0.4 percent to 1,437.92, its highest level since January 2008, and the Dow Jones Industrial Average (INDU) closed at its highest since December 2007 amid bets the labor data will spur the Fed to act.
In Iowa yesterday, Romney said he didn’t believe that more steps by the Fed would have much impact. He called the Fed’s last round of monetary easing “less effective than we had hoped,” and suggested Obama is relying on the central bank to spur an economic recovery his policies have failed to create.
The jobs numbers were released at a pivotal point in the 2012 presidential campaign, with both party conventions finished and the two candidates embarking on a two-month drive to persuade voters before the Nov. 6 election.
Jobs and the economy are the core issues in the race, and they remain a burden for Obama. The unemployment rate has exceeded 8 percent since February 2009, the longest stretch in monthly records going back to 1948, and economic growth this year is below normal for the post-World War II era.
“We know it’s not good enough,” Obama said of the payrolls figure at a campaign stop in Portsmouth, New Hampshire. “We need to create more jobs faster.”
Even the potentially positive news from the jobs report -- the unexpected decrease of the jobless rate -- was more problematic than positive, according to economists. While the unemployment rate came down, “it fell for the wrong reason,” Maury N. Harris, chief economist for UBS Securities LLC, said today in a client note.
“I was, candidly, startled by how much the labor force declined,” said Matt McDonald, a partner at Hamilton Place Strategies in Washington who is advising the Romney campaign.
While the unemployment rate is typically the most closely watched by voters, that may be overshadowed by the lackluster growth in jobs, according to Rothenberg.
“The numbers do provide a mixed message with the unemployment rate down and the new jobs numbers very mediocre, rather disappointing, but the bottom line is a net negative certainly for the president and the White House,” Rothenberg said. “I don’t think you can come to any other conclusion other than the economy continues to be disappointing.”
Across-the-board spending cuts that will be enacted unless Obama and Congress agree to a deficit-reduction plan will worsen the economy, said Niall Ferguson, a Harvard University history professor, according to a transcript of CNN’s “Fareed Zakaria GPS,” which will air tomorrow.
While an agreement is possible, “the more likely scenario is actually a double-dip” recession in 2013 because of a failure to overcome the political gridlock, Ferguson said.
“The most noteworthy thing about the U.S. recovery so far has been how weak it is,” Roger Altman, a private equity investor who was U.S. Deputy Secretary of Treasury under Democratic President Bill Clinton, said on the CNN show. He said deficit-reduction compromise next year might help spur an economic boom “three to four years” from now.
The jobs report coincided with Gallup’s latest poll showing the Democratic convention may have boosted Obama’s fortunes. His job approval reached 52 percent, a 15-month high, and he was favored by 48 percent of registered voters to Romney’s 45 percent. The daily tracking polls ended Sept. 6, the last day of the convention and before the jobs figures were released. The margin of error for both is plus or minus 3 percentage points.
White House adviser David Plouffe, traveling with Obama yesterday, said the convention gave the president a boost.
“That doesn’t mean the race is going to change significantly,” Plouffe said. “But we think that we come out of here with some momentum in terms of putting together the electoral picture.”
Plouffe said the campaign would assess where it stands at the end of next week, “but our suspicion is the race is going to be about where it was.”
The jobs figures may create difficulties for the Obama campaign as the media spends the weekend assessing the impact of two weeks of political conventions, said Kathleen Hall Jamieson, a professor and the director of the Annenberg Public Policy center at the University of Pennsylvania.
“You’ve got at least two more days of writing about the convention, so if the take on this is ‘impact of great convention dampened by bad news on economy,’ you’ve got potentially three days of those bad headlines,” Jamieson said.
Romney sought to capitalize on the news. Arriving in Iowa yesterday for a midday campaign rally in Orange City, Romney said the figures highlight the “clear choice” voters have in the election.
“There’s almost nothing the president has done in the last three and a half, four years that gives the American people confidence he knows what he’s doing when it comes to jobs and the economy,” Romney told reporters in Sioux City, where his campaign plane landed.
Obama only touched on the Labor Department report at a rally in Portsmouth, New Hampshire.
“Today we learned that after losing around 800,000 jobs a month when I took office, business once again added jobs for the 30th month in a row,” he said.
It has taken the U.S. three years to recover about half of the 8.8 million jobs lost as a result of the 18-month recession that ended in June 2009.
Obama focused his remarks on criticism of Romney and the Republicans, who he said are offering “the same prescriptions that they’ve had for the last 30 years -- tax cuts, tax cuts, gut some regulations, oh, and more tax cuts.”
Both candidates made a play for swing states yesterday. Iowa and New Hampshire combined have 10 of the 270 Electoral College votes needed to win the presidency, and the attention being paid by the campaigns indicates how close they expect the election will be.