Client Note: Benchmarking Jobs Day Against Election Day
By Matt McDonald, February 4th, 2011:
Usually in presidential election years, the magic number to watch is 270. But for 2012, the magic number may actually be 215. That is how many thousands of jobs the economy has to create every month for the unemployment rate to drop below 8 percent by Election Day 2012.
As President Obama soft-launches his reelection campaign and Americans anxiously look for signs of life in the economy, it is helpful to have a reference point on what actually constitutes political progress on jobs.
Since 1960, the unemployment rate has been above 7 percent during four elections: 1976, 1980, 1984 and 1992. In three of these 4 elections, the incumbent party lost. Only in 1984 did Reagan win with 7.2 percent unemployment, which was in the context of a 1.3 percentage point drop in unemployment during the year prior to the election.
For President Obama, with a current unemployment rate of 9.4 percent, an unemployment rate below 7 percent is hard to envision by November 2012. However over the coming 2 years, he would see an improved political position from a significant drop in the unemployment rate. Current economic forecasting projects a fourth quarter 2012 unemployment rate of approximately 8 percent (CEA: 7.7 percent; CBO: 8.2 percent; Blue Chip: 8.4 percent). If the unemployment rate can break this 8 percent level, President Obama can credibly argue that he is making progress on jobs, even though the unemployment rate will still be historically high.
If we assume a straight-line projection of job growth and further assume 120,000 new entrants to the job market every month, the economy would need to create 215,000 jobs per month every month between now and November 2012 to get the unemployment rate below 8 percent. Every month we are above 215,000 new jobs, it gets a little easier to reach that 8 percent goal and every month we are below 215,000, it gets a little harder. This is the benchmark that interested parties should be watching tomorrow as the January jobs numbers are released.
There are two complicating factors to this picture. The first is that job growth is unlikely to be this consistent month to month, and as the economy recovers, job growth could accelerate in the out months. The second is that discouraged workers could rejoin the workforce as prospects improve. This would have the effect of increasing the number of jobs needed each month to reduce the unemployment rate.
And of course, the final caveat is all the other factors that contribute to elections. A little under two years out, we don’t know who the GOP candidate will be, what the next Egypt will be or how many records President Obama will break in fundraising. All of these will be worth watching along with tomorrow’s jobs report.
Matt McDonald is a partner at Hamilton Place Strategies and a veteran of two Presidential campaigns and the White House. Prior to joining HPS, Matt worked for McKinsey and Company. He holds an MBA from MIT’s Sloan School of Management and an undergraduate degree in economics from Dartmouth College.