By Ian Swanson - 02/02/12 10:30 AM EST
Recent economic reports could have the Obama White House worried.
All of the reports suggest the pace of economic growth is still slow, and that unemployment could rise, and not fall, by the end of the year.
To make matters worse for Obama, the reports come as his likely Republican opponent, Mitt Romney, gains strength from the drubbing he gave Newt Gingrich in the Florida primary on Tuesday.
To be sure, things aren’t all bad for the White House.
On Wednesday, stocks soared on a report from ADP that found private companies hired 170,000 people in January. Construction spending also rose, sending the Dow Jones up more than 100 points in the morning.
2012 has been a good year for markets so far, despite unease over Europe. Every major index reported strong gains in January, and the rally on Wednesday continued a good year. Improving 401(k) plans might put voters in more of a mood to give Obama four more years in November.
Still, there are plenty of reasons to think the markets and jobless rate will go in a different direction later this year.
Here’s why the White House should be nervous:
• The Federal Reserve has announced it will keep interest rates low through 2014, a sign of its pessimism about the pace of the economic recovery.
• The Commerce Department found the nation’s economy grew at a 2.8 percent rate in the fourth quarter of 2011, a faster pace than the rest of the year but worse than expected. If the economic growth slows in the next quarter, it will be tough to keep unemployment down.
• The Congressional Budget Office projected a wider budget deficit and rising unemployment for the rest of the year, with the jobless rate expanding to 8.9 percent by the end of the year, when Obama goes to the polls. Rising deficits and unemployment would give Romney and Republicans potent weapons to use against the White House.
• Housing remains a problem. The Case-Shiller index again found that home prices across the country fell 1.3 percent in November from October in its most recent survey. Until home prices rebound, voters will lack confidence in the economy’s future, and Obama needs them to feel better about the direction of the country.
All eyes in Washington will now be on the report released Friday morning by the Bureau of Labor Statistics on its assessment of job growth in January.
Moody’s.com economist Mark Zandi expects the January report to be “on the soft side,” with companies adding about 125,000 jobs.
He also said the strong numbers in December were goosed up a bit by mild winter weather, which added to construction payrolls, and a seasonal jump in courier jobs related to online holiday sales.
At the same time, Zandi argues job growth in January will be stronger than indicated in the figures released by Labor, suggesting the 150,000 per month average between the two months gives a decent outlook on the pace of the labor market recovery.
“This isn’t bad, but it isn’t good enough to bring unemployment down significantly,” he said.
The fight for the White House might be determined by how quickly workers return to the labor force. While the official unemployment rate is 8.5 percent, actual unemployment is much higher since the official statistics don’t include people who have dropped out of the labor force.
Some could return if confidence in the economy improves, but it is exceedingly difficult to make predictions on what will happen.
Zandi argues there is a “reasonable chance” unemployment will decline even with economic growth stuck at 2.5 percent and monthly job gains of 150,000.
If the labor force expands, that rate of job growth won’t likely keep unemployment from falling. If the labor force doesn’t expand, the official unemployment rate will fall. Zandi said some older workers who have left the workforce because their unemployment benefits have expired might never come back, an argument that suggests the labor force will not expand.
Obama three years ago said he’d be held accountable if the economy didn’t improve. “If I don’t have this done in three years, then there’s gonna be a one-term proposition,” Obama told “Today Show” anchor Matt Lauer, speaking on the economy.
The next 10 months will tell the story.