PRESIDENTIAL YEARS: The Unemployment Rate is Everything
This Is What The Economy Did The Last Time A President Didn't Win Re-Election 07-08-12 BI
It's beyond conventional wisdom that the economy is far-and-away the most important issue in this year's election. The economy is not nearly as strong as Obama would like, and he's praying that there's no more to the summer swoon, and that the jobs report that comes out on Friday, November 2 (four days before the election) isn't a total dud. There are all kinds of models that purport to predict what varying economic indicators mean for a Presidential election, though they all suffer from very small sample sizes. So we're going to take a look at what the economy was like the last time an incumbent President didn't win re-election, which happened to be George H.W. Bush in 1992. The chart below shows the Bush economy in a nutshell. We're only looking at 3 indicators here: Gas prices (green line), the unemployment rate (red line), and the S&P 500 (blue line), since really, those are the kinds of numbers that really relate to how people feel day in and day out. For simplicity, we're starting the charts right at the beginning of 1989.
As you can see, the stock market (blue) did fantastically under Bush, gaining nearly 60% in 4 years. Gas prices in green spiked during the Gulf war/recession (particularly brutal), but by the end of the administration were back on the decline. What really stands out as having gone the wrong way for Bush was the unemployment rate, which was climbing well into 1992. The recession was technically short, and markets boomed, but the unemployment rate was a killer in November. Here's the same chart, but with University of Michigan Consumer Confidence added in Orange. As you can see, it never got back to the level it was at the start of his administration.
So with that frame of reference, let's look at what the situation is like for Obama.
As with H.W. Bush, the stock market has done fantastically under Obama. Gas prices are much higher than at the state of the administration. And unemployment while way too high, has generally been trending down for most of the time Obama has been in office.
This is why the next few jobs reports are simply going to be enormous. If the downtrend in the unemployment rate is re-established, that will be huge. If it's clear that things are stalling out/getting worse again, it seems likely that the same datapoint which knifed the first Bush president, will also get Obama.
SPX and 2012 Elections 2 07-09-12 Zeal
In 15 out of 16 times the incumbent party was re-elected to the presidency when the stock markets rallied in those final two months before voting. And in 10 out of 12 times when the stock markets fell in September and October, the incumbent party lost. These are super-high correlations over more than a century’s worth of data, so this stock-market indicator has to be taken very seriously.
In general when the stock markets are up, Obama’s approval rating is high and his disapproval rating is low. And the opposite is true when the stock markets are down. Voters are heavily influenced by the SPX!
The Best Economic Indicator In The World Continues To Be Dead On 07-08-12 BI
The reason we like this chart is that for one thing, it's a pretty correlation. But beyond that, it's a reminder of what's driving this market. Fundamentals. There haven't been many periods where the two lines separated much, and where they did, it was always the market (blue line) that caught back up with the fundamentals. When a real downdraft in initial claims happens, then it's time to be worried.