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US President Barack Obama speaks during a Democratic National Congress fundraiser at The Town Hall April 27, 2011.
Many economists say the government should spend more in the near term to stimulate jobs and growth, rather than focusing on cutting the debt. But House Republicans' insistence on spending cuts places the fragile recovery on a potential collision course with President Obama's 2012 reelection bid.
As President Obama tries to refocus on domestic issues, he confronts yet another enemy that's been difficult to eliminate: the laggard economy.
On Friday, he's expected to receive bad news with the Labor Department's release of the April employment report, which analysts forecast will show a decline in job growth after months of incremental gains and an unemployment rate holding steady at 8.8 percent.
Many economists say the report, and the anemic 1.8 percent growth rate in the first quarter, reinforces their call for the president and the Congress to enact spending measures that could spur growth in the near term, rather than focusing on budget cuts and debt reduction. But House Republicans have blocked any such proposals, placing the fragile recovery on a potential collision course with the president's 2012 reelection bid.
Despite multiple indicators of an economy slowly rebounding, forecasts of a stubbornly high jobless rate well into next year pose a significant political threat for Obama.
It's The Economy
Why? Because most Americans vote based on their wallets. Or, as former Bill Clinton adviser James Carville famously said, presidential elections are still about "the economy, stupid"-- and Obama's major legislative wins, mighty political machine and even the afterglow of Osama bin Laden's death may not be enough to offset that history.
"It's pretty stunning if you go look at unemployment rates over the last half century. It's a problem for Barack Obama," says Republican pollster and strategist Whit Ayres. Ayres was recently hired by Obama's former ambassador to China, Jon Huntsman, who is considering a bid for the Republican presidential nomination.
Since the Great Depression, three out of four presidents have lost reelection bids when the unemployment rate was at least 7.4 percent. Ronald Reagan was the exception, winning a second term in 1984.
What jobless rate awaits Obama on Election Day 2012? Possibly nothing below that historical threshold, according to several major forecasts.
By then, the nation's unemployment rate will have dropped to 8.2 percent, according to the Congressional Budget Office. Moody's Analytics predicts a rate of 8 percent. The Federal Reserve provides the most optimism, with a range of 7.6 to 7.9 percent.
A Difficult Needle To Thread
These scenarios would raise another political liability for Obama that Republican presidential candidates would certainly exploit. The unemployment rate next year could be as high as, or higher than, the 7.8 percent when he took office.
"The needle that they are going to have to thread is one that is a difficult one," Democratic strategist Tom Ochs says of the Obama camp. "What they have to do is spend a little bit of time talking about what they inherited, about the steps they took that worked, like the auto bailout and the stimulus, and say there's still a tremendous amount of work to be done. And they have to compare his record to his opponent—and show it's a bad alternative."
A number of economists say that the president and the Congress could do more to give the recovery a jolt immediately.
"Not that it's not important to cut the budget and reduce the deficit, but that's a long-term problem. It's more important to get the economy going again now," says Gus Faucher, an economist at Moody's.
The Stimulus Debate
Faucher says the federal government should provide more stimulus-oriented programs to shore up hemorrhaging state and local governments. He notes that state and local governments have shed about 500,000 jobs since 2008, including an average of 20,000 positions per month in the past six months.
"This is going to be a drag on growth, but people aren't talking about it because it's not popular," Faucher says. He also recommends expanding federal guarantees of small business loans to encourage banks to approve more loans for companies to reinvest in their operations and hire more workers.
Republicans argue that the stimulus funding, and other measures undertaken by Obama, merely increased the deficit without having a sustainable improvement to the economy. Their messaging has resonated with voters and made further spending politically unpopular. And Republicans' control of the House makes such a debate virtually a non-starter, as evidenced by their success in framing upcoming 2012 budget talks exclusively around finding spending cuts.
"There's no economist that I think Republicans are going to listen to now that says the solution to our problems is more deficit spending," Ayres says. "Right now, with the result of the stimulus package, I think it would be very difficult to say the answer is having the federal government go borrow more money from China."
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