The Economy That Cried Recovery
By Matt McDonald, (202) 822-1205, email@example.com
Since the economic crisis hit in 2008, analysts of all stripes have been chasing the economy with their estimates, but have yet to catch it. We are continually revising down estimates of growth, revising up estimates of joblessness, and all the while robust growth always seems to be forecast for “next quarter.” After so many false starts, it’s become the economy that cried recovery.
Aside from the obvious political ramifications for the President of a lagging economy, there is an additional danger that has been created from the false starts and dashed hopes. After projecting that the 2009 stimulus would cap unemployment at eight percent, declaring a “recovery summer” in 2010, and proclamations at the beginning of this year that the economy was “poised for progress,” the Administration’s credibility on the economy has been damaged in a way that impacts their ability to communicate with the voters.
Politically, the White House has been sufficiently burned on the recovery that they are going to have a difficult time playing the traditional Presidential role of cheerleader. Likewise, voters are more likely to tune out good news, with the expectation that they will just be disappointed again.
The net effect of all the economic false starts is that the President needs a comparatively longer string of growth to convince the American people that the economy is really back. Tomorrow’s jobs number will help us know whether the disappointing last couple of months have really been just “bumps in the road,” or whether they represent yet another setback to reinforce the public disappointment.
At this point, the prospects for stronger growth seem weak. Just yesterday Larry Summers, the former Director of President Obama’s National Economic Council, wrote in the Washington Post: “On the current policy path, it would be surprising if growth were rapid enough to reduce unemployment even to 8.5 percent by the end of 2012.” This estimate is in line with other recent private-sector projections. To put that best-case 8.5 percent in context, it would take about 200,000 jobs per month in each of the remaining months to reach that level.
To make a bigger and more meaningful dent, the number of jobs required for the economy to drop below eight percent by Election Day has increased from 217,000 last month to 255,000 this month. This target number is well above the ADP estimate of 114,000 private sector jobs and the Bloomberg survey of economists, which has consensus of 100,000. Our HPS benchmark has been getting notably worse for the President with the recent months of weak job growth. Tomorrow we’ll see if that trend continues, or if we can start to raise our recovery hopes once again.
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.