A weak economy and high unemployment could hurt President Barack Obama re-election chances in November and bolster Republican challenger Mitt Romney’s campaign. Republicans are in Tampa, Florida, this week to formally nominate Romney and have pointed to the dismal growth in making the case to elect their candidate. (via New GDP Numbers Do Obama No Favors — US Business News - CNBC)
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I’ve had a jump on this trend since the beginning of the year:
“While Obama has exercised enormous patience for China’s economic restructuring, political will is clearly decreasing. Mitt Romney looks to be the front-runner for the Republican Party in the presidential elections. It is clear that he has no misgivings on China being a currency manipulator. If the U.S. economy were to go into a double-dip recession, Obama’s chances of reelection would decrease markedly, while Romney’s would increase. The probability of this political outcome can be seen in real time here, here and here (notice the inverse correlation between the final two charts).”
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Here’s my mid year outlook:
“If one’s higher probability scenario calls further economic turbulence, like mine, it would be prudent to begin wondering what life would be like under a Romney presidency in regard to global trade.”
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While it’s not a given that Romney will win, it seems that a worsening economy would doom Obama.
On the other hand, the revision upwards was due to stronger than expected consumer spending:
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“The upward revision to second-quarter growth was largely because consumers spent at a slightly faster pace than first estimated. Consumer spending grew a 1.7 percent rate, better than the 1.5 percent initial estimated. Exports, which add to growth, were also stronger, growing at a 6 percent rate.” — CNBC
Overall growth of economic activity remains weak and vulnerable to an exogenous shock such as a blow up in Europe, a hardlanding in China, a crisis of confidence, etc. However, on the bullish end, it continues.
Jobless Claims in U.S. Little Changed as Market Stable - Bloomberg
The number of Americans filing applications for unemployment benefits was little changed last week, bringing the average over the past month to the lowest level since late March, a sign the labor market has stabilized after employment picked up in July. — Bloomberg
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Economy is showing meddle. Confidence surveys are also showing signs of stabilization. Leading indicators of job creation point to weakness in the second quarter as transitory in nature. For the bulls, the tailwind of a reaccelerating economy is gaining strength.
Chicago National Activity Index supports the case for extremely weak economic growth; recession is very close.
The service sector accounts for close to 90% of the U.S. economy. Thankfully it remains in expansion mode; however, with continued global weakness and falling confidence, it’ll be interesting whether PMI prints will show resiliency. Keep an eye on both New Orders and Backlogs for signs of falling confidence infecting growth prospects.
Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) decreased to –0.45 in May from +0.08 in April. Of the four broad categories of indicators that make up the index, three deteriorated from the previous month and two made negative contributions to the index in May.
The index’s three-month moving average, CFNAI-MA3, decreased from –0.13 in April to –0.34 in May—its third consecutive reading below zero and its lowest value since June 2011. — (Chicago Fed)
Obama Tells Donors Europe to Blame for Weak Job Growth - Bloomberg
President Barack Obama told campaign donors in Chicago and Minnesota that Europe’s sovereign debt crisis is largely to blame for the slowest month of U.S. employment growth in a year, seeking to counter an issue weighing on his re-election bid. — Bloomberg
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Obama hasn’t done a good job managing the economy and now his political fate is tied to it. He does have a point when he blames Europe for our current economic weakness, but I doubt voters will listen this time.
Today’s Economic Data
- U.S. weekly jobless claims jump to 383,000 - Highest level in 5 weeks.
- Hiring trend for private payrolls slows down: ADP
- U.S. GDP up 1.9% in first quarter, revised lower - at least it’s growing
- Chicago business index at lowest level since 2009
+ Fed’s Pianalto: Economy showing cyclical weakness - Fed’s loading the QE gun
+ It wasn’t all bad — May same-store sales beat Street estimates .. and
+ Consumer Comfort In U.S. Climbs To Highest In Four Weeks - oil prices continue to plunge
Manufacturing, Housing Probably Improved: U.S. Economy Preview - Bloomberg
The report of the week will be Durable Goods Orders. Most investors know the housing market is recovering, and it’s home buying season. So we should get some good reports on that front.
But Durable Goods Orders have been weak the first 3 months of the year; a 4th month would begin raising red flags that manufacturing is set to slow the 2nd half of the year. We need to see a good report for confirmation of the recovery story.
Obama Re-Election Momentum Hits Snag in April Jobs Report - Bloomberg
“Mitt Romney looks to be the front-runner for the Republican Party in the presidential elections. It is clear that he has no misgivings on China being a currency manipulator. If the U.S. economy were to go into a double-dip recession, Obama’s chances of reelection would decrease markedly, while Romney’s would increase. The probability of this political outcome can be seen in real time here,here and here (notice the inverse correlation between the final two charts). Should Romney become the Republican front-runner, a double-dip recession could clear the way for his election and dangerously increase the risk of protectionism.” — (RCS Investments Macro Outlook Begn-2012) —-
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My hunch of Obama’s reelection chances hinging on the U.S. recovery seems accurate. Make sure to check out his chances in real time.
Consumer Comfort in U.S. Falls by the Most in More Than a Year - Bloomberg
Sentiment has hit an air pocket and jives with recent subpar economic reports. Is the economy catching a breather, or is it something more nefarious?
I think it’s a little in between. On the bearish side, the global economy is likely exerting a negative impact on the U.S. economy. On the bullish side, the consumer may have been somewhat affected by rising gas prices, which are now coming back down.
U.S. jobless claims remain elevated - Economic Report - MarketWatch
While job creation continues to strengthen according to Gallup, it’s prudent to keep an eye on initial jobless claims, which have increased in recent weeks. April job creation is likely to mirror March, a slowdown from the widespread job creation that characterized the end of 2011 and beginning of 2012.
Fed’s Williams concerned about Europe - The Fed - MarketWatch
He shares my worries.
Some Overnight Econ Data
- German Exports Rebound in January (Note that the headline is misleading; Some bad news on Italy and France is thrown in there).
- Drop in UK Industrial Output Reignites Recession Fears
