President Obama's speech seemed to go over pretty well. Words are important, after all. A CNN/Opinion Research insta-poll found that 85 percent of respondents said the address made them feel more optimistic about where the country is heading. But math is important, too. And that afterglow of optimism will assuredly fade as unemployment numbers continue to rise and a return to true prosperity remains elusive. Let me break it down for you:
1) The economy, as measured by gross domestic product, may well begin to expand again by year's end. Federal Reserve Chairman Ben Bernanke said yesterday that there is a "reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery." There are plenty of mustard seeds around if you are looking for them. Over at the Calafia Beach Pundit blog, Scott Grannis highlights many of them including stability in industrial metals prices, falling TED spread, strengthening dollar, rising shipping rates as tracked by the Baltic Dry Index, and the continued strength of total bank credit. Heck, Irwin Kellner has compiled 21 signs that the worse is over. Fine, let's assume no Great Depression 2.0.
2) That being said, banking crises are usually followed by lackluster recoveries, as happened in Japan and Sweden. Fed economist Emre Ergungor has said the following about nations that undergo a big credit crisis: "Banking crises can have devastating effects on the economies of developing and industrialized countries. In addition to the taxpayer costs of recapitalizing the banks, banking crises have negative long-term effects on the economy, such as slow growth, high interest rates, and lower living standards."
As it is, the Fed now projects that the unemployment rate could climb to more than 9 percent this year and next, and still be above 8 percent in 2011 -- some four years after the recession began. And the Philadelphia Fed surveyed 43 forecasters who predicted that the unemployment rate would rise from 7.8 percent this quarter to 8.9 percent in the fourth quarter of 2009. Unemployment is expected to average 8.4 percent this year and 8.8 percent in 2010.
3) The tendency for unemployment to keep rising even after an economy starts growing again means voter crankiness doesn't subside quickly. According to the National Bureau of Economic Research, the 1981-82 recession bottomed in November 1982. President Reagan's approval rating, according to Gallup, bottomed at 35 percent in January 1983, down from 68 percent in May 1981. His approval rating didn't rise above 50 percent until November 1983, a full year into the recovery. And recall what kind of red-hot recovery it was. The economy grew at rapid 4.5 percent in 1983, and unemployment plunged from 10.4 percent to 8.3 percent.
4) But good luck finding someone who thinks the economy will grow at such a blistering pace next year. The Fed sure doesn't. A better comparison is the 1990-91 recession. The economy was hammered by imploding real estate bubble, a construction bust, a banking crisis, and a credit crunch. The downturn bottomed in March 1991. But the jobless rate kept rising, from 6.8 percent that month to 7.8 percent by June 1992. In parallel, President Bush's approval rating bottomed at 29 percent in July 1992. The lesson here: Recessions are murder on presidential approval ratings, especially downturns that come with jobless recoveries. And remember, moving out of this recession, the economy might get hit by a tax big increase, higher interest rates, and cap-and-trade legislation that would impose huge costs on businesses and consumers. Those economic ingredients could make for a recipe of intense political pain for the Obamacrats next year and beyond.