Jobs Gains May Not Help Obama's Re-Election Bid

The recent improvement in the job market comes as welcome news for President Obama as he struggles to answer GOP attacks on the campaign trail that he’s mismanaged the economic recovery. There are a lot of reasons, though, that it may be too early for the White House to start cheering about jobs.

There's no shortage of issues vying for voter attention as the 2012 presidential campaign kicks into gear. But with unemployment stuck above 8.5 percent for the 34th month in a row, the job market likely will top the list until the November election.

The White House hammered on the issue again week, as the president rolled out yet another round of job-creation proposals at a meeting with business leaders in the White House. This one is aimed at “insourcing” jobs that have been lost to overseas companies.

"I don’t want America to be a nation that’s primarily known for financial speculation and racking up debt buying stuff from other nations," he said Wednesday in the East Room to a smattering of applause. "I want us to be known for making and selling products all over the world stamped with three proud words: 'Made in America.' And we can make that happen."

The Obama administration has good reason to focus on boosting job growth. History shows that the trend in the unemployment rate can be more important to an incumbent's chances than the unemployment rate itself. Since 1956, every incumbent president has won re-election when unemployment fell over the two years leading up to the election. And none has won a second term when it rose.

After an historic wave of layoffs during the 2007 recession, the job market is showing convincing signs of life again. A week ago, the government reported that the unemployment rate fell to 8.5 percent, the second monthly drop. New weekly claims for unemployment insurance, despite a surprise bump higher this week, have been trending lower to levels economists say are consistent with an improving job market.

But those headlines create the first potential hazard for the White House. Economists note that an improved job outlook typically brings “discouraged” workers back in the official count of the total workforce; to be counted, you have to be actively looking for work.

As those discouraged workers begin looking again, they're added to the statistical pool of jobless workers. But unless they find jobs right away, their re-entry will push the unemployment rate higher.

Like many employment statistics since the 2007 recession, the surge in discouraged workers was extreme. The labor force participation rate - the percent of the population considered part of the workforce - is at the lowest level in nearly 30 years.

From a low of 363,000 when the recession began in December, 2007, the number of workers who are too discouraged to look for work more than tripled to 1.3 million last December. Since that peak, better job prospects have lured some of those people back in the workforce. But as of December 2011, some 945,000 still reported they had given up looking for a job.

Though job growth has picked up, it's still not strong enough to re-hire the large pool of workers left behind by the recession. From a low of 6.7 million in early 2007, the number of people out of work more than doubled to about 15.4 million in October, 2009. While it has since eased to 13.1 million, the current pace of job growth - an average of 162,000 new jobs were created each month in 2011 - is barely enough to keep up with the population growth.

The Obama administration has its work cut out for it to boost the pace of hiring. One big hurdle: Companies from manufacturers to oil producers report that they want to hire but can't find workers with the skills they need. The purported skills mismatch has left behind millions of workers with low-tech skills whose jobs may never come back. Even as the economy recovers, economists say that "structural" unemployment will remain stubbornly resistant to the improving job outlook.

For now, those long-term jobless workers are staying afloat with the help of unemployment insurance, which has become a divisive political issue. After several rounds of extensions, the current program provides up to 99 weeks of benefits for workers who have paid into the system. Congressional Republicans are gunning for major changes in the program after agreeing to a two-month extension in December.

One would cut back the total number of weeks of eligibility, cutting off benefits for millions of households. The other looks to limit eligibility to those who finished high school, unless they're enrolled in a program for an equivalency diploma. That battle, which heats up next month when the two-month extension expires, will open a new front in GOP attacks on the White House jobs policy.

While recent economic data are pointing the right direction, companies aren't creating new jobs as fast as they're booking higher profits. Even as hiring has picked up, the number of jobs openings declined, according the Labor Departments’ monthly Job Openings and Labor Turnover Survey (JOLTS). Employers filled nearly 4.15 million jobs in November, but the number of job openings shrank by 63,000, to 3.2 million. There still aren't enough jobs to go around: there's roughly one job open for every four people out of work, according to the JOLTS data.

Business also aren't using their rising profits to boost workers' paychecks. Though consumer spending is rising, it's coming from more borrowing, not higher wages.

"The consumer has been spending beyond his means once again," said private economist Gary Shilling. "We have seen a decline in the savings rate and a run up in borrowing. I don't think that's sustainable."

Shilling believes that a looming consumer spending crunch could bring on another recession in 2010. If that happens, President Obama will have an even tougher time getting re-elected.

"My Labrador retriever could get elected if we have a recession year," said Shilling.

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