Democrats pray for economic spring
By: Ben White
April 4, 2014 05:45 AM EDT
This was supposed to be the year the U.S. economy would finally break out of the doldrums — the year it would deliver the kind of robust growth that could lift President Barack Obama’s dismal approval ratings and help Democrats avoid a shellacking in November.
We are about to find out if that dream is dead.
So far, it’s been easy to dismiss weak economic news as the result of an awful winter. But those excuses ended with Friday’s March jobs report, the first of spring, which showed a lower than expected gain of 192,000 — Wall Street traders were looking for something closer to 300,000 — and an economy not losing speed but not exactly revving up for the run to the November midterm elections.
Democrats were fervently hoping for a bigger number. Because if they don’t get faster growth soon, they could wind up trying to hold off Republicans this fall while fighting the triple threat of an unpopular president, an unpopular health care law and a stagnant economy that has left voters grouchy and pessimistic.
Experts say even a single good jobs number wouldn’t be enough. And the March number, which also showed the unemployment rate unchanged at 6.7 percent, was hardly a blockbuster. It will take months of stronger employment gains and increases in take-home pay to lift the grim national mood. Democrats, fairly or not, will get nearly all of the blame if the economy sinks back into the mud — and time is running short for them to get credit for any improvement.
Friday’s jobs number comes against a backdrop of dashed hopes. Late last year, major forecasting firms said the economy could shake off its anemic growth rate of the last four years and heat up to a 3 percent pace or more in 2014, which would be the fastest rate since 2005. But the first three months of the year saw one weak number after another from job creation to consumer spending to construction. Was all this bad news just the result of frigid temperatures and heavy snows? Or were all the rosy predictions just a bunch of wishful thinking? The answers to these questions could decide the outcome of the 2014 midterm elections.
“Whether the economy keeps puttering along in this kind of semi-stagnant state that has characterized so much of this recovery or whether we finally break out of it is of the utmost importance to the shaping of the fall campaign,” said Bill Galston of the Brookings Institution. “Many Americans still believe we are in a recession. You can run from that fact, but you cannot hide from it.”
Democrats, of course, will try to run hard from it. They’ll blame Republicans for refusing to increase the minimum wage, approve more infrastructure spending or take other steps Democrats are attempting to highlight with their “Fair Shot” agenda.
“The public is in fact frustrated and angry and sour,” said Sen. Chuck Schumer (D-N.Y.), who helped craft the new Democratic economic message. “But I believe America is ripe for our agenda focused on middle-class incomes and the lack of enough good paying jobs.”
Senior White House economic adviser Jason Furman kept up that approach on Friday, calling for an increase in the minimum wage and an extension of long-term jobless benefits. But he did not have the big number to celebrate that the White House wanted. Instead the subdued mantra was the same as it’s been for months: “This is consistent with the steady, solid recovery we’ve had,” Furman told CNBC from the White House lawn.
Republicans mostly laugh off the Democrats’ latest plan to hold a series of show votes on raising the minimum wage, “paycheck fairness” for women and other issues. They say the public, especially in critical Senate races in GOP-leaning states such as Arkansas, Louisiana and North Carolina, will see through the efforts and lay the blame for any continued economic malaise squarely on the party that has controlled the White House for the past six years.
And they believe continued attacks on the president’s health care law — which remains highly polarizing despite its success hitting enrollment targets — coupled with a relentless focus on the economy will expand their House majority and deliver the six seats they need to take the Senate.
“An improving economy is something that we all want, but I’ve seen nothing that this administration and this Senate have done to set the stage for a better economy,” said Sen. Jerry Moran of Kansas, chairman of the National Republican Senatorial Committee. “Clearly, Obamacare has contributed to economic difficulty and Americans see that in their everyday lives with higher premiums, deductibles and co-pays. But what’s frustrating to me is that things I’ve worked on to increase capital formation and create a Tax Code that encourages investment in small business never even get consideration in the Senate.”
Moran added that Republicans would continue to hammer Obama for failing to get the Senate to approve fast track trade negotiating authority legislation that the president himself strongly supports. That authority is viewed as critical to getting big trade deals done with Europe and Asia, something the president also wants but has been unable to accomplish. And Moran said the administration’s continued refusal to make a final decision on the Keystone XL pipeline would be a regular part of the party’s economic message.
Meanwhile, even a couple of good jobs numbers will not necessarily mean the economy is actually heading into the kind of growth mode that helped Bill Clinton in 1998 become the only president since World War II to escape the tendency of the party controlling the White House to lose seats in the sixth year of an incumbent’s term.
Many economists believe the unemployment rate and number of jobs created each month has become a fairly weak indicator of how the economy is actually doing and how people feel about their own situation. The jobless rate has been steadily coming down, but a good part of that is due to people leaving the labor force, which now stands at just 63.2 percent of the population, the lowest level in 35 years. The participation rate ticked up slightly in March, one of several pieces of modestly good news in the monthly report.
Meanwhile, household incomes have actually fallen 4.4 percent since the official end of the recession in June 2009. These numbers help explain why even though headlines occasionally refer to “consumer confidence” figures hitting highs since the recession, the numbers are still very depressed.
For instance, 55 percent of Americans, according to Gallup, currently believe the economy is getting worse rather than better. A recent NBC/Wall Street journal poll found that 57 percent of Americans think we are still in a recession even though we have not technically been in one in nearly five years.
One or two good jobs reports won’t change these numbers.
“We are still weak by historical standards. It is not an extremely confident consumer,” said Lynn Franco, chief economist at the Conference Board, which tabulates consumer confidence figures. “People are not as negative as they were during last year’s government shutdown, but by no means are they optimistic.”
So what are the chances that the economy really will start to improve this year in a way that the broader electorate will actually feel? Most economists still argue they are fairly good but far from guaranteed.
“It’s still a decent bet, but it’s not at all a done deal and it depends enormously on the small-business sector finally coming out of hibernation,” said Ian Shepherdson, head of Pantheon Macroeconomics. Shepherdson noted that the housing market is cooling somewhat and big corporations are unlikely to spend a lot of the cash sitting on their balance sheets.
So it will be up to small businesses — which avoided doing much hiring or spending the past couple years over fears of fiscal metldowns in Washington — to carry the economic burden.
“You can discount most of the weak numbers so far this year due to all the bad weather,” Shepherdson said. “But if small-business spending has not arrived by summer, it’s hard to see where else an economic revival is going to come from. But if the revival does come, it changes everything because there is a huge amount of catchup spending to be done on vehicles, software, equipment, really everything.”
Democratic strategists therefore would be wise to get wonky and keep their eyes on the small-business sentiment numbers published by the National Federation of Independent Business. If they are not showing solid gains by summer, the economic picture is likely to remain weak. The last NFIB index for March stood at 91.4, a recessionary reading. Experts say it needs to rise above 94 to suggest an improving economy.
And while there is no longer the threat of a government shutdown or debt limit crisis hurting the economy in 2014, there are other threats still on the horizon. The Federal Reserve could move too quickly to remove stimulus or miscommunicate its plans for interest rate hikes, possibly hurting the mortgage market and the broader economy. Emerging markets are struggling, China is slowing and geopolitics remain dicey with Russia still threatening further moves on Ukraine and the Middle East a constant source of possible unrest.
“The underlying fundamentals are still there for stronger growth in 2014 than 2013,” said Jan Hatzius, chief economist at Goldman Sachs. “But the world is still an uncertain place. And there are some indicators that are looking more sluggish than you would like, including household formation and mortgage applications. And bank lending standards are still very tight.”
Still, most economists are pointing to stronger growth for the rest of the year after a weak first quarter hammered by the long and snowy winter. Democrats better hope those forecasts are right or they may spend the last two years of the Obama presidency as the minority party on both sides of Capitol Hill.
“There is a lot of history on the side of Republicans in that in the sixth year of a two-term president a lot of the chickens come home to roost,” said Galston. “And even one or two strong jobs reports will probably not be enough to reverse the very negative views Americans currently have about the economy.”