July 26, 2012
With apologies to Mr. Carville, we are not calling anyone “stupid”, but it is still the economy
With a little more than three months until the general election, concerns about the U.S. economy remain center stage in the presidential election. Slowing growth in the second quarter, stubbornly high unemployment, a slow recovery in the moribund commercial and residential real estate markets, pending economy disaster in Europe, among other things, all conspire to create the kind of uncertainty that keeps capital on the sidelines.
Economists are projecting an anemic 1.2 percent growth rate in real GDP for the second quarter, versus 1.9% in the first quarter. Regulatory and economic uncertainty continue to dampen hiring and hamper a recovery in property markets. The U.S. unemployment rate remains stubbornly pegged at around 8.2 percent. (It should be noted that this is the U3 number, a figure that only takes into account the unemployed who are still seeking a job. The actual figure were it to include those who have given up, as well as the underemployed, would be considerably grimmer.) Economic troubles in the Eurozone continue to worsen. According to this morning’s Wall Street Journal (July 24, 2012), Mood’s has downgraded its outlook for the German economy, an economy that has served as a bastion of stability in an EU roiled by debt crises, skyrocketing unemployment and draconian austerity measures. Last fall, Fed chairman Ben Bernanke put the exposure of U.S. banks to the European debt problem at around $643 billion. It is likely higher.
Uneasiness about the economy is showing up in the polling data. For the week ending July 15, Gallup reported the lowest weekly average (-27) in its Economic Confidence Index since January of this year. The Real Clear Politics Average puts the percentage of Americans who feel that America is on the “Wrong Track” versus the “Right Direction” at 62 percent. The President’s approval rating remains at about 47 percent and the candidates are in a dead heat nationally.
The fact that the candidates are essentially tied in polls in late July is no indicator of where things will end up in November. President Carter was essentially tied with Reagan until 8 days before the general election, with each projected to garner 45 percent of the popular vote. Reagan won the election by 10 points.
Mr. Carville’s famous 1992 slogan, “It’s the economy, stupid!” has more resonance today than when he first said it. Barring some unforeseen circumstance, this election will hinge on the economy.