Jobs Report Makes a 2008 GOP Win Less Likely

Falling employment could presage an election-year recession--and a win for the Democrats.

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You know the "five-second rule," the one that says you can eat food dropped on the ground for five seconds and it's still good. Well, maybe, there's a five-day rule for presidential candidates. Maybe Fred Thompson can still drop right back out of the presidential raceā€”no harm, no foul. Today's job numbers were that bad for Republicans and that good for Democrats. I mean, if you're a political junkie who likes to bet a few sawbucks now and then, it might be time to snag a few "Democratic Party Candidate to Win 2008 Presidential Election" contracts over at the TradeSports online betting site.

The economy lost 4,000 jobs in August instead of gaining the 100,000 that economists had been looking for. All around Wall Street, investment firms are upping their estimates that the economy will go into recession later this year or early next. Swiss Re, for instance, cranked up its recession odds to 35 percent from 20 percent. And some of Merrill Lynch's fancy computer models put the odds at 70 percent.

More and more, 2008 is starting to look like 1980, when a election-year recession dashed whatever chances Jimmy Carter had of being re-elected. (Don't expect the Bernanke Put to save the GOP, either. Fed rate cuts may help the stock market but will take six to nine months to help the economy, according to former Atlanta Fed President Bill Ford.)

And even if a recession is avoided, the economy is clearly slowing, and the unemployment rate may well be headed higher. As it is, surveys show that many Americans are dissatisfied with the economy six years into the Bush expansion. Blame Iraq, blame gas prices, the numbers are what they are.

Now let's factor out August for a moment since all the market turmoil may have really soured attitudes that month. In July, according to American Research Group, 42 percent of respondents thought the economy would be worse a year from now on, while only 22 percent thought it would be better. And a total of 49 percent of Americans rated the national economy as excellent, very good, or good, while 50 percent rated it as bad, very bad, or terrible. And those figures are after six years of growth and falling unemployment.

What do you think those numbers will look like if growth slows and job losses rise? Remember, in November 1992, the first President Bush was still on the defensive about the economy, even though unemployment was falling and the recession had been over for a year and a half (for the first three quarters of 1992, the economy grew at a robust 4.21 percent, 3.91 percent, and 3.98 percent, respectively).

Does it really seem likely that voters will blame only Bush and give the GOP presidential candidates a free pass? Or is it more likely that a "vote for change" will be a vote for Hillary Clinton or Barack Obama?

On the bright side for Republicans is the reality that Democrats don't seem to have many ideas about how to expand the economy other than increasing government spending to combat climate change. This cycle, at least, they seem all about economic security rather than economic growth. And the Dem candidates are all for repealing part or perhaps even all of the Bush tax cuts. Hard to see how that boosts growth.

There seems to be an opening for a candidate who can articulate a compelling and dynamic pro-growth agenda beyond calling for an extension past 2010 of the 2001 and 2003 Bush tax cuts. Most of the GOP debate so far has been about abortion, immigration, and Iraq. If that candidate is Fred Thompson, he can probably forget about the five-day rule.

But to give the other side of the trade its due, here's a bullish bit from a chat with economist Bob Stein over at First Trust Advisors:

I think we're going to get 3 percent growth in the third quarter, and I think we're going to get above 3 percent growth in the last quarter of this year. The cash income available to consumers, what we call discretionary cash income, has grown at around a 3½ percent rate over the past year.... We think the labor market will go through a temporary lull and then revive later this year. If you look at the labor share of GDP, it's pretty low right now, and in other periods when it's been low we see an acceleration of job growth.... I do think there will be many homeowners who are pained by mortgage resets, and I do think there are many lenders who are going to have borrowers who default. There are a lot of crybabies in Connecticut and Manhattan, and there are mortgage lenders around the country who used securities and loans and then sold them, and that's why the crying is occurring. When you really look at real economic activity, business investment, exports, inventory building, it's hard to find the channel where there are credit problems. It might alter the well-being of the superrich, but I don't think it's going to affect the buying habits of the middle class if the people involved still have jobs.