Election 2012: Jobs Picture Won’t Brighten Before November

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If President Barack Obama is pinning his Election 2012 hopes on better U.S. jobs reports in the months between now and November, he may want to get started on updating his resume.

The president's re-election bid took a blow on Friday when the U.S. Department of Labor reported the U.S. economy added just 80,000 jobs in June. That was far below analyst expectations of 100,000-125,000, and well short of the 125,000 needed to keep pace with population growth.

The disappointing U.S. jobs report came on the heels of other bad economic news, including a contraction in manufacturing activity and a decline in household spending.

"We had confirmation of what all of the other economic indicators have been signaling for some time, and that is a marked deceleration of the U.S. economy," Paul O'Keefe, director of economic research for the consulting firm J.H. Cohn and a former Labor Department official, told The Wall Street Journal. "This is not an outlier month. We've seen a deceleration in job growth since the beginning of the year."

While the headline unemployment rate held steady at 8.2%, the numbers are clearly going in the wrong direction. The Labor Department said 155,000 people joined the workforce in June -- almost double the number of jobs added.

An analysis by Hamilton Place Strategies calculated that the economy would need to add 219,000 jobs per month to get unemployment below 8% by Nov. 6.

Given the recent trend - 68,000 jobs in April, 77,000 in May and now 80,000 in June - it appears more likely the rate stays steady or even inches higher as we approach Election 2012.

Why U.S. Jobs Reports Won't Get Better

Unfortunately for President Obama, hiring won't increase significantly any time soon.

Businesses simply have too many concerns:

  • The fiscal cliff: Like most Americans, business owners are worried about what will happen if Congress fails to deal with the Dec. 31 expiration of the President Bush-era tax cuts. No action would result in a de facto big tax increase. And those tax increases, combined with billions in mandatory federal spending cuts, could knock the U.S. economy back into a recession in early 2013. Few employers will want to add workers until the fiscal cliff issue is resolved, and that may not happen until next year.
  • Obamacare: The Affordable Care Act may help many people, but it will give businesses headaches. Employers large and small face complex new rules, regulations and penalties, all of which will add to the cost of each worker. While the recent Supreme Court ruling upheld Obamacare, a Republican sweep in November could result in the law's repeal. All of which means a lot of uncertainty for business owners, and added reluctance to hire.
  • Weakening U.S. economy: Slower consumer spending means slower demand and less incentive to hire. If you don't need to increase production, you don't need more workers.
  • Weakening global economy: Demand from rapidly growing emerging economies like China and India helped fuel growth for many U.S. multinational corporations even as the U.S. economy struggled. But now those economies have cooled.
  • Eurozone debt crisis: While the Eurozone debt crisis fades in and out of the news, business owners know that the EU is a powder keg. Eurozone leaders have kept a lid on the situation so far, but if the crisis spins out of control it will hit global markets, including U.S. markets, hard.

Promises Come Back to Haunt Election 2012

It's easy to see how unemployment could remain stuck at 8.2% or higher for the rest of 2012.

Historically, unemployment over 7% has made it very tough for incumbent presidents to get re-elected. Only two presidents have done it in the past 75 years: Franklin Roosevelt and Ronald Reagan.

Making matters worse for President Obama is that he promised better U.S. jobs report numbers by now.

Election 2012

Those numbers appear in a document called "The Job Impact of the American Recovery and Reinvestment Plan." It was written by the Obama administration transition team to sell Congress on the passage of the $787 billion American Reinvestment and Recovery Act (ARRA) in January 2009.

"Certain industries, such as construction and manufacturing, are likely to experience particularly strong job growth under a recovery package that includes an emphasis on infrastructure, energy, and school repair," the report said.

But a chart comparing jobless rate projections both with and without the stimulus shows just how over optimistic those promises were.

For example, the stimulus was supposed to prevent unemployment from going to 9%. Yet it peaked at 10% in October 2009.

ARRA was also supposed drop the U.S. jobless rates below 7% by January 2011 and 5.6% by June of this year. Obviously, that didn't happen.

President Obama has often tried to lower expectations by saying it will take a long time to dig out of the hole the 2008 financial crisis created. But even that can't fully explain the gap between the recovery he promised and the reality.

"All executive reelections are referenda on the incumbent, and the biggest driver is the economy," Nathan Daschle, the former executive director of the Democratic Governors Association, told Politico. "The lesson of 2010 is that chief executives get reelected when people feel they are stewarding a strong economy. They get defeated when it's going south."

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