President Obama faces re-election amid a mixed and mediocre set of economic indicators. While there has been some improvement in the economy, most major indicators still show below-average growth.
The most instructive comparisons for Mr. Obama might be the two most recent presidents who had an economy that fell somewhere in this range during the election year, where the rate of growth was positive but below the long-term trend.
These conditions probably best describe the elections featuring the two George Bushes, in 1992 and 2004. George H.W. Bush failed to win re-election, while George W. Bush won a second term. However, another comparison that sometimes gets made – one between Mr. Obama and former President Jimmy Carter – is less appropriate. It’s as inappropriate as comparing Mr. Obama with former President Ronald Reagan, who benefited from exceptionally robust economic growth in 1984.
It would be hard to overstate what a disaster the economy looked like at this point in 1980. In many ways, it seemed to be melting down as badly as the economy was in September and October 2008 when the magnitude of the financial crisis was becoming clear. Let me give you a sense of what I mean.
The election forecast that we will soon be releasing relies in part on economic data. I will provide a more technical explanation of how this works once we have the numbers on the site. However, the basic idea is that it is important to look at a consensus of economic indicators rather than relying on any one data point; it is very hard to tell which economic series best predict elections. So, just as the model hopes to increase accuracy by averaging different polls together, it will rely on an index of different economic data series as well.
This averaging process is especially important this year since the economic indicators are mixed. Focusing on just one indicator could give you a misleading impression about Mr. Obama’s re-election chances.
At this point in 1980, however, it didn’t really matter what numbers you looked at — almost everything pointed toward a disaster.
Below is a comparison of how seven major economic indicators looked as of Tuesday and how they looked 32 years ago, on May 29, 1980. The reason for the selection of these particular variables is that they do a good job of capturing the different segments of the economy, and that they are updated rapidly: on a monthly basis or more often. (This is as opposed to things like gross domestic product that have a long lag time before they are reported.) Most of the variables are backward-looking, but others, like the change in stock-market prices, have a more forward-looking component as well.
All of this data is based on how these statistics were initially reported, rather than how they were later revised. In other words, this is what the economy would have looked like to economists and voters considering it in real-time.
(At some point, I’ll have another post about how economists need to be much more careful about the distinctions between real-time and revised data when they’re building forecasting models. But we’ll save that for another time.)
Based on the data as reported in the six months leading up to May 29, 1980, inflation was increasing at a frantic annualized rate of almost 16 percent. At the same time, industrial production, consumption and personal income were declining at annualized rates of about 5 percent, adjusting for inflation.
The jobs data was less bad than the other variables in 1980, but still not good. As the figures were reported at the time, jobs had increased slightly in the six months leading up to May 1980, but not enough to keep up with population growth.
The forward-looking data was bad as well. The stock market declined in the six months leading up to May 1980 (even without adjusting for inflation), and the consensus of economic forecasters at the time was that conditions would remain recessionary for the six months ahead.
By contrast, the data this year is mediocre, but nowhere near that terrible. Industrial production has picked up quite a bit and is an economic bright spot, which could help Mr. Obama in the manufacturing-intensive economies of the Midwest. Inflation has not been a major problem throughout the economy as a whole, although energy prices have been a periodic threat.
However, income growth is very slow, as is the growth in consumption as indicated by the broadest measure of it, personal consumption expenditures. (Growth in retail sales has been more robust, but that is a less comprehensive statistic.)
Jobs growth has been decent recently, but many economists expect it to slow some in the subsequent months. Gross domestic product in the final six months of the year, likewise, is expected to grow at a below-average rate. Still, there is really no comparison between Mr. Obama and Mr. Carter, who faced an economy that was still bottoming out into a severe and broad-based recession. Mr. Obama, by contrast, faces numbers that are improving but perhaps too slowly.
It would probably require an economic shock, instead, to put Mr. Obama in Mr. Carter’s shoes. This could happen, of course – for instance, if there were a meltdown in Europe. Economists differ greatly on whether this would have relatively mild or more catastrophic effects on the American economy. But most versions of it would be enough to leave Mr. Obama as a clear underdog for re-election.
Even if that were to occur, however, Mr. Obama’s situation might still not be as bad as Mr. Carter’s. For instance, he does not face an acute foreign policy crisis, at the moment at least, as Mr. Carter did in Iran, and a European-driven recession would probably not be associated with high inflation (although one set off by oil-price instability in the Middle East might).
In some ways, in fact, it’s remarkable that Mr. Carter lost his election to Mr. Reagan by only 10 points.
Some of this was because the recession of 1980 was extremely unusual: it was severe but also brief, ultimately persisting for only six months. Mr. Carter’s recession technically ended in August 1980, although not in a way that would have been highly visible to consumers and voters at the time.
All of this produced some incredibly volatile polling in 1980. Mr. Carter led Mr. Reagan by a wide margin in polls in January and February 1980. The numbers drew closer together in the spring. By the summer, Mr. Reagan had a clear lead, peaking around 25 points in polls conducted immediately after the Republican convention in Detroit. Then, Mr. Carter rebounded, with polls conducted in late October showing him behind Mr. Reagan by only a point or two on average. Mr. Reagan considerably beat his polls on Election Day, however, and won in a landslide.
Once we release the election model, we will be a little bit more in “sweat the small stuff” mode, analyzing the trends in the polling and the economic numbers on an almost-daily basis. So far, however, the 2012 election cycle has been extremely stable as compared with some other years like 1980.