By Peter Schroeder - 12/05/11 10:15 AM EST
President Obama, with his electoral fate tied to the economy, must be pleased with the momentum he’s getting.
Just months ago, the U.S. credit rating was downgraded and Democrats worried Obama was following in the footsteps of one-term President Jimmy Carter. Maybe he will, but reports in the last week suggest manufacturing and construction are humming, and Thanksgiving saw record-setting shopping by consumers.
The icing on the cake? A jobs report Friday shaved nearly half a point off the unemployment rate. The 8.6 percent rate was down from 9 percent in October and is the lowest unemployment has stood in two and a half years.
The positive economic news has been accompanied by turbulence in the Republican presidential nomination race that is also feeding Democratic optimism.
The GOP fight now looks like a two-man race between Mitt Romney, a Republican who provokes lukewarm feelings from conservatives, and Newt Gingrich, the former Speaker. Democrats salivate at the idea that this old foe could lead the GOP ticket.
“He would be the best thing to happen to Democrats since Barry Goldwater,” Rep. Barney Frank (D-Mass.) quipped this week at a press conference, referring to the GOP senator sent to a crushing loss in the 1964 presidential race.
Rep. Peter Welch (D-Vt.) went so far as to call Obama’s reelection a “done deal.”
“The economy makes a huge difference. Any incumbent president is going to do a lot better with the economy improving and unemployment going down,” Welch said.
But if Obama’s reelection is the train, the EU debt crisis could be the dynamite on the tracks that derails him.
Skyrocketing interest rates in Italy led the Federal Reserve this week to join other central banks in lowering the interest rate they charge for providing dollars to European banks.
The Fed said the move was motivated by a need to “ease strains in financial markets,” and the actions led the Dow Jones Industrial Average to spike by nearly 500 points.
Economists and Democratic lawmakers alike think the strength of the U.S. recovery rests to a large degree with the outcome in Europe, as a major downturn would hurt U.S. exports and threaten the global economy.
“While we may have a nascent or very early sign of some recovery, I think that could be wiped out completely if we saw some inability on the part of the EU to get their act together,” Rep. Stephen Lynch (D-Mass.) said this week.
Gus Faucher, director of macroeconomics at Moody’s Analytics, said Europe represents the largest risk to the U.S. economy.
“The big question, and it’s a huge question, is what happens in Europe,” he said.
The U.S. economy remains fragile. Forty percent of likely voters in this week’s The Hill Poll expect their personal finances to be worse off when they go to the polls next year than they are now, and 40 percent more just expect to be holding their own.
Home prices fell again this week, and while the unemployment figures released Friday are a boon to Obama, they aren’t as good as they look at first glance.
The jobless rate dropped in part because more than 300,000 people stopped looking for work and were no longer included in calculations of the Labor Department.
Still, it’s a huge change from what was a brutal August for Obama and Democrats.
Texas Gov. Rick Perry was about to join the GOP race for the president, and his entry was seen as another sign of Obama’s vulnerability.
The month began with a downgrade to the once-sterling U.S. credit rating after a congressional standoff over the debt ceiling that troubled markets and frustrated the public. The fight over raising the debt ceiling lowered the approval ratings for congressional Republicans, but made Obama look weak.
August closed with a dismal jobs report that found the nation added zero jobs for the month (a figure that has since been revised higher).
Four months later, Perry has become an afterthought in the GOP race and Obama is armed with an improved economy.
He has also gone on offense against congressional Republicans by pushing to extend a payroll tax cut he argues would spur growth. Speaker John Boehner (R-Ohio) last week said the payroll cut had helped the economy, but he faces pushback from Republicans who argue the tax cut is ineffective and should be ended.
Boehner and House Majority Leader Eric Cantor (R-Va.) found themselves in the unusual position at a closed-door GOP conference last week of arguing with fellow Republicans over extending a tax cut.
Their agenda this week is to find a way of uniting their caucus around legislation that would prevent their party from being blamed for a tax hike millions of workers would see in their paychecks.
Democrats have felt the swing in momentum.
Rep. Sander Levin (D-Mich.) said the president’s chances for reelection have “improved” with the economy, while Rep. Elijah Cummings (D-Md.) says voters will see the president has things moving in the right direction.
“The economy is not where we want it to be, but it’s at least stable and slowly but surely going in the right direction,” Cummings told The Hill.