Commentary Magazine


Topic: economy

The Right Climate to Torpedo the Economy?

You might think that with a historically weak recovery and, as John Steele Gordon wrote this morning, worries about the Federal Reserve’s actions affecting the stock market, this is a time when President Obama would be focusing like a laser beam on the economy. But you’d be wrong about that. As Ross Douthat noted yesterday in the New York Times, the administration’s second term priorities are at odds with those of the public. Instead of dealing with health care costs and entitlement reform (the issues most Americans consider the highest priorities), the president spent the start of his term hyperventilating about gun control. After switching to immigration reform for a while (something that I think is worth doing but is certainly not as important as cleaning up the mess that ObamaCare is about to create or reforming entitlements), tomorrow he will perform another pivot and unveil a major plan to lessen the effects of climate change in a speech at Georgetown University.

As he said over the weekend in a video released by the White House, it will include far-reaching measures that will introduce new limits on carbon dioxide emissions from power plants among other unspecified ideas that will largely be put into force by executive order rather than legislation. In one fell swoop, Obama will not only gratify his liberal base by pandering to their obsessions, he will also undertake a vast expansion of executive power in which the executive branch will assume near dictatorial proportions under the rubric of regulation. Whatever one may think about the science behind this plan—and there is very little sign that the president is operating on anything but on the basis of his ideological biases—there is no question that any plan that will hamper power production on this scale will have a deleterious impact on the chances that the country can sustain its economic recovery by raising the costs of energy and killing jobs. That he will do so in a manner that ought to set off alarm bells about the separation of powers and will generate a blizzard of lawsuits that could tie up his plan for years only illustrates the poor judgment being exhibited by the president.

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You might think that with a historically weak recovery and, as John Steele Gordon wrote this morning, worries about the Federal Reserve’s actions affecting the stock market, this is a time when President Obama would be focusing like a laser beam on the economy. But you’d be wrong about that. As Ross Douthat noted yesterday in the New York Times, the administration’s second term priorities are at odds with those of the public. Instead of dealing with health care costs and entitlement reform (the issues most Americans consider the highest priorities), the president spent the start of his term hyperventilating about gun control. After switching to immigration reform for a while (something that I think is worth doing but is certainly not as important as cleaning up the mess that ObamaCare is about to create or reforming entitlements), tomorrow he will perform another pivot and unveil a major plan to lessen the effects of climate change in a speech at Georgetown University.

As he said over the weekend in a video released by the White House, it will include far-reaching measures that will introduce new limits on carbon dioxide emissions from power plants among other unspecified ideas that will largely be put into force by executive order rather than legislation. In one fell swoop, Obama will not only gratify his liberal base by pandering to their obsessions, he will also undertake a vast expansion of executive power in which the executive branch will assume near dictatorial proportions under the rubric of regulation. Whatever one may think about the science behind this plan—and there is very little sign that the president is operating on anything but on the basis of his ideological biases—there is no question that any plan that will hamper power production on this scale will have a deleterious impact on the chances that the country can sustain its economic recovery by raising the costs of energy and killing jobs. That he will do so in a manner that ought to set off alarm bells about the separation of powers and will generate a blizzard of lawsuits that could tie up his plan for years only illustrates the poor judgment being exhibited by the president.

Obama signaled that he would prioritize his beliefs about the climate in his second inaugural speech, so no one should be surprised by his decision to gamble his dwindling supply of political capital on an issue that is liable to hurt rather than help the economy. The president will, of course, argue that his green plan is good for the economy in the long run and tout his belief that more regulations will help transform the country and create jobs in industries that provide alternatives to the burning of fossil fuels. But the country has already been down this road in the first term as Obama’s stimulus boondoggle provided cash for Solyndra and other “green” corporations that proved to be cash cows for the president’s major contributors but a disaster to the taxpayers that were fleeced to bolster companies that couldn’t stand on their own.

The administration’s defense of this decision to bypass Congress will be to claim that the legislative branch has failed to act. But there is a reason why both Republicans and Democrats have been reluctant to implement the sort of Christmas tree of regulations that will be presented tomorrow: it is likely to hurt an already skittish economy. The high-minded gloss of idealism and gloom and doom predictions about our future that fuel the president’s climate push will be used by liberals to dismiss objections about the impact on the economy of this project. But Obama and his cheerleaders in the liberal media—who have been urging him to usurp power in this manner to further the global warming agenda for years—the danger that adding on new layers of federal regulations to an industry already sinking under the weight of government rules is real.

It should also be noted that given the anger on Capitol Hill and among the electorate about a trio of scandals that center on abuse of government power, the notion that the president would seek to govern on his own in this manner is curious. One would think the administration would be wary of feeding suspicions about extra-constitutional usurpation of power right now. But, like worries about the economy, concerns about the Constitution are always going to run second to ideology in the Obama White House.

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The Fed Hints

One major part of the job of the Federal Reserve is to keep the economy on an even keel, not booming too much nor going into recession. (The other major parts are to protect the banking system, and to prevent inflation.) So when the Great Recession hit in 2008, the Fed dropped the Fed Funds rate to near zero, which has the effect of lowering interest rates generally, hopefully stimulating the economy. It also began flooding the street with money through open-market operations, buying federal bonds, thus increasing the cash balances of banks, giving them more money to lend.

That’s the easy part of keeping the economy on an even keel. The tricky bit is when and how abruptly to reverse course. The balance sheet of the Fed has grown enormously in the last few years and at some point the money it has created has to be withdrawn from the economy, again by open-market operations, this time selling federal bonds. If that weren’t done, it’s possible a 1970s inflation could break out. But there is always strong political pressure to keep money cheap.

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One major part of the job of the Federal Reserve is to keep the economy on an even keel, not booming too much nor going into recession. (The other major parts are to protect the banking system, and to prevent inflation.) So when the Great Recession hit in 2008, the Fed dropped the Fed Funds rate to near zero, which has the effect of lowering interest rates generally, hopefully stimulating the economy. It also began flooding the street with money through open-market operations, buying federal bonds, thus increasing the cash balances of banks, giving them more money to lend.

That’s the easy part of keeping the economy on an even keel. The tricky bit is when and how abruptly to reverse course. The balance sheet of the Fed has grown enormously in the last few years and at some point the money it has created has to be withdrawn from the economy, again by open-market operations, this time selling federal bonds. If that weren’t done, it’s possible a 1970s inflation could break out. But there is always strong political pressure to keep money cheap.

The economy has clearly been improving, with corporate profits up and housing prices now rising. Since most families’ net worth is concentrated in their homes, a rising housing market makes people feel richer. And that makes them more likely to go out and buy, pumping up the economy. To be sure, unemployment is stubbornly high, but it’s a lagging indicator, tending to recover more slowly than other economic indicators.

So Ben Bernanke, the chairman of the Federal Reserve, has begun to hint that the Fed’s quantitative easing is drawing to a close. It’s been buying $85 billion worth of federal bonds a month. The markets have been reacting badly to Bernanke’s Delphic pronouncements. The Dow was above 15,300 last Tuesday. Right now it’s below 14,700, a drop of four percent. With the prospect of interest rates rising, bonds have been declining as well.

But these are short-term flutters in the stock market. It is corporate profits that determine the movement of equities. As long as corporate profits are strong and growing, the market will not swoon. Rising interest rates, however, will cause bond prices to decline in proportion.

The Fed has an unenviable job right now. If it acts too slowly, inflation could set in. If it acts too quickly, the economy could be tipped back into recession. And those with a dog in the fight—which is practically every interest group in the country—will be pushing hard to get its way.

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The Jobs Report

There is little news in this morning’s jobs report from the Bureau of Labor Statistics. There were 175,000 jobs created in May, but the unemployment rate ticked up a notch to 7.6 percent. (The BLS euphemistically called the unemployment rate “essentially unchanged.” I doubt they would have used that phrase had it gone down a notch.)

The number of unemployed, 11.8 million, stayed the same, as did the number of long-term unemployed (over 27 weeks), at 4.4 million. The unemployment rate for teenagers (24.5 percent) and blacks (13.5) remained dismal. The rate for blacks actually went up, from 13.2 percent.

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There is little news in this morning’s jobs report from the Bureau of Labor Statistics. There were 175,000 jobs created in May, but the unemployment rate ticked up a notch to 7.6 percent. (The BLS euphemistically called the unemployment rate “essentially unchanged.” I doubt they would have used that phrase had it gone down a notch.)

The number of unemployed, 11.8 million, stayed the same, as did the number of long-term unemployed (over 27 weeks), at 4.4 million. The unemployment rate for teenagers (24.5 percent) and blacks (13.5) remained dismal. The rate for blacks actually went up, from 13.2 percent.

The statistics also show, starkly, the importance of education, or at least education credentials. For people over 25 with less than a high school diploma, the unemployment rate is 11.1 percent. For those with a high school diploma but no more, it’s 7.4 percent. With some college, it’s 6.5 percent. For those with a college degree, it’s only 3.8 percent.

In all, President Obama continues to preside over the worst economic recovery since the Great Depression. As James Pethokoukis tweeted this morning, the Obama administration promised in January 2009 that, if the stimulus passed, the unemployment rate today would be just above five percent.

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Housing Makes a Comeback

The housing market, which was the epicenter of the recession that began in 2007, is bouncing back. The Wall Street Journal reports that housing prices in March were up 10.2 percent from a year earlier, the best such figure since 2006, when housing prices began to collapse. Home sales are also up from a year ago, by 9.7 percent, and houses are selling more quickly, according to an earlier Journal story.

This is good news for the economy as a whole, reflected in the fact that the Dow Jones Industrial Average hit a record high yesterday and yields on treasuries rose sharply (which, of course, causes bond prices to fall).

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The housing market, which was the epicenter of the recession that began in 2007, is bouncing back. The Wall Street Journal reports that housing prices in March were up 10.2 percent from a year earlier, the best such figure since 2006, when housing prices began to collapse. Home sales are also up from a year ago, by 9.7 percent, and houses are selling more quickly, according to an earlier Journal story.

This is good news for the economy as a whole, reflected in the fact that the Dow Jones Industrial Average hit a record high yesterday and yields on treasuries rose sharply (which, of course, causes bond prices to fall).

For most families, their home is their biggest investment, so when housing prices are rising they feel richer. And people tend to increase spending when they’re feeling rich. That boosts the economy generally.

But while this is, certainly, good news, the economy is not yet booming by any means. Unemployment remains stubbornly high. The Federal Reserve continues to keep interest rates very low and is still injecting $85 billion a month into the economy by buying federal bonds and mortgaged-backed securities. Only when the Fed begins the very tricky task of paring down its balance sheet and letting interest rates rise back to more normal levels will we be able to say the Great Recession is well and truly over.

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America’s Still-Weak Economy

Friday’s job report, which showed that 165,000 jobs were created in April and the unemployment rate dropped to 7.5 percent, was greeted by many news outlets as wonderful news. It’s not clear to me why.

I’ll happily concede that the jobs report indicates that the economy is not in immediate danger of lurching into another recession. And it’s true that the stock market is doing very well, with the Dow having crossed 15,000 for the first time. 

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Friday’s job report, which showed that 165,000 jobs were created in April and the unemployment rate dropped to 7.5 percent, was greeted by many news outlets as wonderful news. It’s not clear to me why.

I’ll happily concede that the jobs report indicates that the economy is not in immediate danger of lurching into another recession. And it’s true that the stock market is doing very well, with the Dow having crossed 15,000 for the first time. 

At the same time, we’re now nearly four years after the recession officially ended. Historically, the worse the recession, the better the recovery. But not in the age of Obama. Over the last year we created substantially less than 200,000 jobs a month (173,000). In addition, the number of hours worked in April declined–an indication that we’re seeing a rise in part-time, not full-time, jobs. (This phenomenon may well include the effect of the Affordable Care Act on small businesses.)

Moreover, (a) the civilian workforce participation rate remained at a 34-year low (63.3 percent); (b) last week the U.S. home-ownership rate fell to the lowest in almost 18 years; and (c) growth is anemic. As I mentioned in a previous post, Jeff Cox, a CNBC senior writer, earlier this week wrote, “In terms of actual growth, this is … the worst economy in 83 years. GDP growth is in the midst of its longest sub-3 percent annual growth rate since 1929, the beginning of the Great Depression.”

We are now almost four years after the official end of the recession, and over the last year the economy has grown at less than 2 percent (1.8 percent). In addition, as James Pethokoukis points out, the U.S. lost 8.8 million private sector jobs during the Great Recession. Since the beginning of the jobs recovery, we have gained back 6.8 million, leaving a gap of about 2 million. 

On Friday we received a mediocre jobs report that is indicative of a mediocre economy. What is unfortunate is that this is the best that President Obama can claim after more than four years in office.

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The Dow at 15,000

The Dow Jones Industrial Average hit 15,000 this morning, the first time it has crossed that benchmark. Even if it backs off and closes below that level, this is a remarkable recovery from its Great Recession low in March 2009, when it hit 6,626. In the last four years the Dow has risen 123 percent.

How do we square such a bull market with the anemic recovery I noted earlier today and the long period of sub-par growth that Pete Wehner referred to? To be sure, the stock market is a leading indicator, recovering sooner than the economy as a whole, whereas unemployment is a lagging indicator. But it takes more than that to explain things.

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The Dow Jones Industrial Average hit 15,000 this morning, the first time it has crossed that benchmark. Even if it backs off and closes below that level, this is a remarkable recovery from its Great Recession low in March 2009, when it hit 6,626. In the last four years the Dow has risen 123 percent.

How do we square such a bull market with the anemic recovery I noted earlier today and the long period of sub-par growth that Pete Wehner referred to? To be sure, the stock market is a leading indicator, recovering sooner than the economy as a whole, whereas unemployment is a lagging indicator. But it takes more than that to explain things.

A major part of the reason, I think, is the fact that there is a lot of cash–corporate, pension fund, and personal–sitting on the sidelines right now. The uncertainties regarding Europe, ObamaCare, Syria, etc., are making companies reluctant to put that capital into expansion.

But the usual places to invest cash, such as treasuries or CD’s, are paying practically nothing right now, with the Fed keeping interest rates at records lows. Even ten-year treasuries are paying a dismal 1.72 percent, treasury bills, which mature in less than a year, far less than that. So the only game in town is the stock market and money has been pouring into Wall Street, sending the markets up and that, of course, becomes self-re-enforcing.

Will it last? That depends on the outcome of the various uncertainties.

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The Jobs Report

According to the jobs report released this morning, the recovery continues to dawdle along, confirming its status as the worst recovery since the Great Depression.

There were 165,000 jobs created last month, and the unemployment rate dropped another tenth of a percent, to 7.5 percent. That’s down four-tenths of a percent since January. But, again, much of the drop in unemployment has not come about through job growth but through workers dropping out of the labor force. The participation rate, the percentage of the population holding jobs, remained unchanged over last month, at 63.3 percent, but that’s down from 63.6 percent in January. It has been dropping steadily throughout the so-called recovery.

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According to the jobs report released this morning, the recovery continues to dawdle along, confirming its status as the worst recovery since the Great Depression.

There were 165,000 jobs created last month, and the unemployment rate dropped another tenth of a percent, to 7.5 percent. That’s down four-tenths of a percent since January. But, again, much of the drop in unemployment has not come about through job growth but through workers dropping out of the labor force. The participation rate, the percentage of the population holding jobs, remained unchanged over last month, at 63.3 percent, but that’s down from 63.6 percent in January. It has been dropping steadily throughout the so-called recovery.

The jobless rate among teenagers (24.1 percent), blacks (13.2) and Hispanics, (9.0) remains dismal. So does the number of people working part-time for lack of a full-time job, which increased by 278,000 to 7.9 million.

All in all, a status quo report where the status is pretty lousy.

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Balancing the Budget

I certainly agree with Seth Mandel that the federal budget can never be brought under control without entitlement reform. Entitlements are well over half the budget. And the dates when each program will reach insolvency are all known. Those dates are not that far away, some less than 10 years.

He says there are only two ways to get to a balanced budget. One is a balanced budget amendment to the Constitution that would force the government to spend within its means and the other is for the president and Congress to man up and just live within the government’s means, however inconvenient that will be politically.

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I certainly agree with Seth Mandel that the federal budget can never be brought under control without entitlement reform. Entitlements are well over half the budget. And the dates when each program will reach insolvency are all known. Those dates are not that far away, some less than 10 years.

He says there are only two ways to get to a balanced budget. One is a balanced budget amendment to the Constitution that would force the government to spend within its means and the other is for the president and Congress to man up and just live within the government’s means, however inconvenient that will be politically.

Unfortunately, neither of those will do it. In the latter case, human nature simply makes it impossible. Politicians, like everyone else, are motivated by self-interest and spending money is more likely to further that self-interest than fiscal restraint. Fiscal restraint is a long-term benefit, benefiting the population in general. Spending is a short-term benefit, usually benefiting a specific group, who will reward the politician with votes and campaign contributions. That means there is always a tide pushing in the direction of more spending. And with every politician’s short-term self-interest in tomorrow’s headline and the next election, that tide will, at least collectively, not be fought. And, of course, log-rolling is how things are done in Congress: You vote for my bridge to nowhere and I’ll vote for your useless airport.

Nor can a balanced budget amendment work as long as those who spend the money (members of Congress and the president) get to decide how to keep the books. As Seth points out, most states have balanced budget requirements in their constitutions and state governments often make end-runs around them in order to spend without having to raise taxes. Just this week, the SEC accused Illinois (to be sure, the poster child of state budgetary malfeasance) of securities fraud in regard to the information it gave investors about the bonds it issued to fund its pension system. State pension funds are often underfunded by the simple expedient of predicting rates of return that are unlikely to be achieved. This allows states to contribute less to those funds in the here and now, while the consequences are only apparent in the long term.

So what to do? If a balanced budget amendment won’t work as long as politicians have the choice of either balancing the budget or cooking the books to make it appear balanced, an amendment making it impossible to cook the books would. Such an amendment (or act of Congress) could set up an independent board, modeled on the Federal Reserve (which keeps the power to print money out of the hands of politicians). This board would have the power to establish the rules by which federal accounting is done, with a mandate to make the federal books honest, transparent, and complete. Corporations can’t make the rules by which they keep their books; why should government have that power? More, it would take over most of the functions of the OMB and the CBO, which are the creatures of the White House and Congress respectively. An independent agency should “score” legislation.

Second, make the president once more a major player in the budget negotiations.  The president is the only person in Washington whose political interests are the same as the interests of the country as a whole. The 535 members of Congress are more concerned with bringing home the bacon to their state or district, with its immediate political benefit to themselves, than in balancing the budget, however much lip service they give the latter.

The Budget Control Act of 1974 was perhaps the most misnamed piece of legislation ever to be signed into law, as it caused the budget to immediately and permanently spin out of control. A major reason is that it made the president a political eunuch in budgetary matters. He prepares a budget (well, the law requires him to, but Obama’s 2014 budget is a month and a half late and counting) but it is always more or less dead on arrival in Congress. And beyond that, his only budgetary weapon is to veto one or more of the 13 appropriations bills that fund the discretionary part of the budget, a very powerful but blunt weapon indeed. (It’s no weapon at all, of course, when there are no appropriations bills, only a continuing resolution to fund the entire discretionary budget, as has been the case in recent years.)

The Budget Control Act removed the president’s power to “impound” funds, i.e. refuse to spend them. Restoring that power or, better yet, giving him a line-item veto that would pass constitutional muster, would give him a powerful tool in budget negotiations (“I’ll give you your bridge to nowhere if you’re with me on entitlement reform”). Further, giving the president the power to limit overall spending, subject to a congressional override, would further strengthen his hand. None of this would be easy to achieve, as the very people who would have to pass the necessary amendments and acts would be the same people whose power would be greatly constrained by them. And, as James Madison explained, “Men love power.” Certainly as long as the economically illiterate and politics-obsessed Washington press corps fails to do its job, not much will happen. At least until the marketplace takes control and sends the cost of federal borrowing up to Greek levels.

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Obama’s Second Term Troubles Have Begun

In the aftermath of President Obama’s now-obvious-to-all sequester overreach–in which he first predicted the end of the world as we know it, then backed away from those claims once the cuts went into effect, then attempted to inflict maximum pain on the American people, and is now blaming the Secret Service for the stupid and unnecessary decision to shut down White House tours–something is changing.

President Obama’s RealClearPolitics.com approval rating is in the 40s. His disapproval rating exceeds his approval rating in three different polls (Fox, McClatchy/Marist, and Quinnipiac). Congressional Democrats are beginning to grouse. And according to a Washington Post story yesterday, Mr. Obama’s approval rating at this early stage in his second term is among the lowest of any president in the post-World War II era.

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In the aftermath of President Obama’s now-obvious-to-all sequester overreach–in which he first predicted the end of the world as we know it, then backed away from those claims once the cuts went into effect, then attempted to inflict maximum pain on the American people, and is now blaming the Secret Service for the stupid and unnecessary decision to shut down White House tours–something is changing.

President Obama’s RealClearPolitics.com approval rating is in the 40s. His disapproval rating exceeds his approval rating in three different polls (Fox, McClatchy/Marist, and Quinnipiac). Congressional Democrats are beginning to grouse. And according to a Washington Post story yesterday, Mr. Obama’s approval rating at this early stage in his second term is among the lowest of any president in the post-World War II era.

According to the Washington Post-ABC News poll, half of independents express a negative opinion of the president’s performance; just 44 percent approve.
 A majority of Americans give Obama negative marks on handling the economy. And the president has only a four-percentage-point lead over Republicans when it comes to whom the public trusts more to deal with the economy.

This is clearly not where a president who is less than two months into his second term wants to be. But in some respects, it’s not all that surprising. Mr. Obama, while he won his contest with Governor Romney fairly handily, was not a particularly popular president for most of his first term–and the key elements of his agenda are decidedly unpopular.

It hasn’t helped the president that the transition period was characterized by a fractious debate with Republicans over the so-called fiscal cliff, followed by an equally fractious debate with Republicans over sequestration. The public appears to be tiring of these Obama-manufactured crises. And polling indicates that they are tiring as well of tax increases, which is at the heart of Obama’s economic theory, such as it is. So the president’s standing is fairly weak.

That could of course change; public opinion polls are ephemeral and the currents in politics can shift quickly. That said, I believe that one of the most important political facts of Obama’s second term will be the increasing unpopularity of the Affordable Care Act, which is the crowning domestic achievement of the Obama presidency.

It’s never been popular, even when it passed–and it’s gotten less popular over time. Moreover, it’s noxious effects are only now beginning to be felt–and they’ll get worse, not better, as more and more of this monstrously unworkable plan begins to kick in.

My assumption is that by the middle and end of Obama’s second term, reactionary liberalism, having been tried, will have failed. Badly. At that point the public will turn its lonely eyes to Republicans. They need to be ready. My guess is they will be.

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Obama’s Pivot Away from Jobs

It hasn’t been a good week in economic news. Earlier this week we learned that the GDP contracted. John Steele Gordon wrote at the time: “The GDP shrank in the last quarter of 2012, declining a small 0.1 percent. While that is minimal, it is the first negative quarter since the second quarter of 2009 and a sharp slowdown from the 3.1 percent growth in the third quarter.” Today he wrote about the disappointing jobs numbers, which showed low growth and a slightly higher unemployment rate. 

It’s interesting that this week, in light of all of this economic doom and gloom, that the Obama administration has decided to layoff its long-defunct Jobs Council, which was set to expire this week. Don’t worry about these layoffs, however, as the Council was composed of business and labor leaders–they all have day jobs to fall back on. The Council hasn’t met for over a year and served more as a photo opportunity than an actual working group–while photos were quick to emerge from the meetings, recommendations, reports and accomplishments never quite made it out. One member of the Council, Intel’s CEO Paul Otellini, didn’t exactly have much confidence in the president last year, as he publicly endorsed his Republican opponent Mitt Romney.

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It hasn’t been a good week in economic news. Earlier this week we learned that the GDP contracted. John Steele Gordon wrote at the time: “The GDP shrank in the last quarter of 2012, declining a small 0.1 percent. While that is minimal, it is the first negative quarter since the second quarter of 2009 and a sharp slowdown from the 3.1 percent growth in the third quarter.” Today he wrote about the disappointing jobs numbers, which showed low growth and a slightly higher unemployment rate. 

It’s interesting that this week, in light of all of this economic doom and gloom, that the Obama administration has decided to layoff its long-defunct Jobs Council, which was set to expire this week. Don’t worry about these layoffs, however, as the Council was composed of business and labor leaders–they all have day jobs to fall back on. The Council hasn’t met for over a year and served more as a photo opportunity than an actual working group–while photos were quick to emerge from the meetings, recommendations, reports and accomplishments never quite made it out. One member of the Council, Intel’s CEO Paul Otellini, didn’t exactly have much confidence in the president last year, as he publicly endorsed his Republican opponent Mitt Romney.

James Pethokoukis, a leading economics blogger for AEI, discussed the decision to close the Council yesterday, highlighting several charts that showcase why the mission to improve the employment picture is far from accomplished. As Pethokoukis shows, beyond the GDP and jobs numbers, there are a number of indicators that the economy is stagnating at best. What is inexplicable is why the Obama administration has decided to pivot from the precarious economic situation for millions of Americans to instead focus on immigration and gun control. 

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The Jobs Report

Well, another month, another mediocre jobs report. The economy added 157,000 jobs in January while the unemployment rate ticked up a notch to 7.9 percent.

Those who have been unemployed long-term remained at a dismal 4.8 million and were 38.1 percent of all unemployed. There were 8 million people working part-time who would rather be working full-time. That number might well go up in the future as companies adjust their workforces to avoid Obamacare mandates requiring health insurance (or a fine) if there are more than 50 full-time employees.

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Well, another month, another mediocre jobs report. The economy added 157,000 jobs in January while the unemployment rate ticked up a notch to 7.9 percent.

Those who have been unemployed long-term remained at a dismal 4.8 million and were 38.1 percent of all unemployed. There were 8 million people working part-time who would rather be working full-time. That number might well go up in the future as companies adjust their workforces to avoid Obamacare mandates requiring health insurance (or a fine) if there are more than 50 full-time employees.

The terrible figures for teenage unemployment (23.4 percent) and black unemployment (13.8 percent) are little changed.

In sum, the economy is continuing the most dismal recovery since the Great Depression and is now virtually at a standstill. The GDP ticked down last month, unemployment ticked up (and if it ticks up one more notch, it will be back to 8 percent, a significant psychological benchmark, especially as it would have been trending upwards since its September level of 7.7 percent).

The Fed has announced that it will continue its easy money policy, buying more than $90 billion of federal bonds and mortgage-backed securities a month, until the unemployment rate hits 6.5 percent. Judging from the last few months, that means for the foreseeable future.

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Next Recession Belongs to Obama, Not GOP

Democrats spent the 2012 presidential campaign successfully blaming George W. Bush for the country’s sluggish economy. But a week after President Obama’s second inaugural, they are still not taking responsibility for the country’s fiscal health. The White House responded to yesterday’s disturbing news that GDP declined for the first time since 2009 in predictable fashion: they blamed the bad numbers on Republicans. White House spokesman Jay Carney said the dip was the fault of “Congressional Republicans” who have tried to restrain the government’s out-of-control spending. Even though the president got his way in the fiscal cliff negotiations with the GOP, Carney said the threat of sequestration, which would mandate across-the-board spending cuts, is the real culprit for the downturn and that the “brinksmanship” by the House Republicans was victimizing the nation’s economy.

This was thin gruel even from a practiced spin master like Carney. The idea of sequestration, which will have a particularly devastating effect on defense, originated in the White House and not the GOP caucus before it was put into the 2011 deal on the debt ceiling. But while we must give Carney credit for his usual chutzpah, the idea that Republican efforts to face up to chronic fiscal problems via entitlement reforms is to blame is a particularly depressing example of the ideological dead end into which the administration has driven the economy. As John Steele Gordon wrote yesterday, there is no way of knowing yet whether yesterday’s GDP numbers are the harbinger of an Obama recession or merely a statistical anomaly, but the steadfast refusal of the White House to face up to the long-term threats is what could be driving the economy into the ditch.

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Democrats spent the 2012 presidential campaign successfully blaming George W. Bush for the country’s sluggish economy. But a week after President Obama’s second inaugural, they are still not taking responsibility for the country’s fiscal health. The White House responded to yesterday’s disturbing news that GDP declined for the first time since 2009 in predictable fashion: they blamed the bad numbers on Republicans. White House spokesman Jay Carney said the dip was the fault of “Congressional Republicans” who have tried to restrain the government’s out-of-control spending. Even though the president got his way in the fiscal cliff negotiations with the GOP, Carney said the threat of sequestration, which would mandate across-the-board spending cuts, is the real culprit for the downturn and that the “brinksmanship” by the House Republicans was victimizing the nation’s economy.

This was thin gruel even from a practiced spin master like Carney. The idea of sequestration, which will have a particularly devastating effect on defense, originated in the White House and not the GOP caucus before it was put into the 2011 deal on the debt ceiling. But while we must give Carney credit for his usual chutzpah, the idea that Republican efforts to face up to chronic fiscal problems via entitlement reforms is to blame is a particularly depressing example of the ideological dead end into which the administration has driven the economy. As John Steele Gordon wrote yesterday, there is no way of knowing yet whether yesterday’s GDP numbers are the harbinger of an Obama recession or merely a statistical anomaly, but the steadfast refusal of the White House to face up to the long-term threats is what could be driving the economy into the ditch.

What Carney failed to mention is that every business in America is worrying about the implications of the president’s signature legislative achievement. ObamaCare is about to go into effect and the fear that it will drive up health-care costs in a way that could sink even substantial companies is already having a powerful impact on job growth and investment. Add in worries about the mounting federal debt and the government’s spending problems—which, contrary to the assertion of Senator Mary Landrieu, is a grim reality and not the invention of FOX News analysts—as well as Democratic threats to raise taxes and you have the makings of a perfect storm that could well create another Great Recession.

It is true that the uncertainty over the future that is fueled by the standoffs over the debt ceiling hasn’t helped the economy. The president has succeeded in fooling much of the public into believing this is solely the work of Republican obstruction, but now that the House GOP has punted on the debt ceiling, it is going to be difficult for Carney to keep pretending that it is House Speaker John Boehner and the Tea Party, rather than the man in the Oval Office, who has the principal responsibility for what is going on.

If the next growth report shows a negative number, President Obama will find himself presiding over his own recession. He may try to pin it on the GOP, but in his fifth year in the White House, that is a trick that even a master like Jay Carney will have trouble pulling off. The next recession, which may already be starting, is the work of an administration that is prepared to saddle the country with more debt in order to realize their liberal fantasies of expanded government, not the last-ditch efforts of generally powerless Republicans trying to stave off impending disaster.

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The GDP Takes a Hit

The GDP shrank in the last quarter of 2012, declining a small 0.1 percent. While that is minimal, it is the first negative quarter since the second quarter of 2009 and a sharp slowdown from the 3.1 percent growth in the third quarter. Government spending was down sharply, while businesses cut inventories. Foreign trade was down 5.7 percent. But consumer spending was up 2.2 percent, an increase from the previous quarter. And housing continued its slow recovery.

So what’s going on? Good question. It could just be a blip or it could be the start of a new recession. (The usual definition of a recession is two consecutive quarters of declining GDP, or what economists, with their usual talent for assaulting the English language, call “negative growth.”)

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The GDP shrank in the last quarter of 2012, declining a small 0.1 percent. While that is minimal, it is the first negative quarter since the second quarter of 2009 and a sharp slowdown from the 3.1 percent growth in the third quarter. Government spending was down sharply, while businesses cut inventories. Foreign trade was down 5.7 percent. But consumer spending was up 2.2 percent, an increase from the previous quarter. And housing continued its slow recovery.

So what’s going on? Good question. It could just be a blip or it could be the start of a new recession. (The usual definition of a recession is two consecutive quarters of declining GDP, or what economists, with their usual talent for assaulting the English language, call “negative growth.”)

Certainly the uncertainty about future government policy, the effects of Obamacare, and the ever-mounting national debt, haven’t helped. Neither have even greater economic problems in other parts of the world, especially Europe. India lowered its bank rate yesterday and China is facing rising labor costs and labor unrest. Even Canada, which has been a bit of a golden boy of fiscal responsibility and good economic management in recent years, has seen its big banks taken down a notch in the last few days.

The stock market, meanwhile, has been booming, up nearly 1,500 points on the Dow since mid-November and now only a couple of hundred points off its all-time-high, reached in October 2007. The stock market is almost always a leading indicator, foretelling the future of the economy. That could be the case here, or it could just be a lot of foreign money fleeing to safer quarters from such deeply troubled economies as Spain, Argentina, and even France, whose employment minister the other day publicly described the country as “totally bankrupt.” He walked it back, of course (one can imagine the phone call from François Hollande), but still.

The GDP dip is certainly no cause for panic. It is trends that matter in economics, not one-time statistics. But it is clearly a time for caution.

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The Jobs Report

The unemployment rate fell to 7.7 percent from 7.9 in October, and 146,000 jobs were added to the economy. But the first number is from the Household Survey data and the second from the Establishment Survey data. As usual in this economy, the two surveys tell different stories.

According to the Household Survey, the number of unemployed remained about the same, at 12 million, and long-term unemployed made up 40.1 percent of total unemployed, both dismal numbers. Equally dismal was the number of underemployed, working part-time jobs but wanting full-time work, at 8.2 million.

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The unemployment rate fell to 7.7 percent from 7.9 in October, and 146,000 jobs were added to the economy. But the first number is from the Household Survey data and the second from the Establishment Survey data. As usual in this economy, the two surveys tell different stories.

According to the Household Survey, the number of unemployed remained about the same, at 12 million, and long-term unemployed made up 40.1 percent of total unemployed, both dismal numbers. Equally dismal was the number of underemployed, working part-time jobs but wanting full-time work, at 8.2 million.

Again the participation rate (the percentage of working-age adults in the labor force) declined, to 63.6 percent, accounting for most of the decline in the unemployment number. The baby boomers retiring at the rate of 10,000 a day is the only thing that is keeping the numbers from being even more dismal than they are.

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Re: The Jobs Report

As John Steele Gordon noted, the unemployment rate ticked up slightly last month, but it’s still just below 8 percent — a psychological barrier that would have certainly hurt Obama days before the election. Still, it’s important to remember where we were supposed to be at this point, at least according to the Obama administration’s 2009 estimates that were used to sell the stimulus package to the public. Jim Pethokoukis writes

Back in early 2009, White House economists Christina Romer and Jared Bernstein predicted the unemployment rate would be 5.2% in October 2012 if Congress passed the $800 billion stimulus. As the above chart shows, they weren’t even close.

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As John Steele Gordon noted, the unemployment rate ticked up slightly last month, but it’s still just below 8 percent — a psychological barrier that would have certainly hurt Obama days before the election. Still, it’s important to remember where we were supposed to be at this point, at least according to the Obama administration’s 2009 estimates that were used to sell the stimulus package to the public. Jim Pethokoukis writes

Back in early 2009, White House economists Christina Romer and Jared Bernstein predicted the unemployment rate would be 5.2% in October 2012 if Congress passed the $800 billion stimulus. As the above chart shows, they weren’t even close.

Click above for the chart, which, as Pethokoukis notes, isn’t even close. In fact, their estimates of what the unemployment rate would look like without the stimulus is much lower than our current rate. 

According to Fox News, we might be waiting a long time for the numbers the White House predicted:

The October numbers allow President Obama to argue the economy is technically growing under his watch. But they also allow Mitt Romney to argue that the new jobs are not making much of a dent in the unemployment problem. Both campaigns quickly set to work putting their spin on data that, if nothing else, underscores the slow pace of the recovery. 

Former Bureau of Labor Statistics chief Keith Hall told Fox Business Network that at this rate, “we’re still talking nine or 10 years” before the economy gets back to normal.

Remember when Obama said he could get it done in three, otherwise it would be a “one-term proposition”? Now we’re told even if he’s reelected not to expect the economy to bounce back until well after he’s out of office. How’s that for accountability?

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The Jobs Report

The last jobs report before the election came in at 8:30 this morning. It showed a net gain of 171,000 jobs and an uptick in the unemployment rate to 7.9 percent from 7.8 last month.

These numbers are unlikely to impact the election significantly. The job growth is still not big enough to bring down the unemployment rate, at least not quickly, but it remains job growth. President Obama can claim progress. The unemployment rate did not go back above 8 percent, as some thought might happen after last month’s unexpected .3 percent drop. But it did rise a little. That’s not good news for the president.

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The last jobs report before the election came in at 8:30 this morning. It showed a net gain of 171,000 jobs and an uptick in the unemployment rate to 7.9 percent from 7.8 last month.

These numbers are unlikely to impact the election significantly. The job growth is still not big enough to bring down the unemployment rate, at least not quickly, but it remains job growth. President Obama can claim progress. The unemployment rate did not go back above 8 percent, as some thought might happen after last month’s unexpected .3 percent drop. But it did rise a little. That’s not good news for the president.

So this report simply reflects the economy as it has been under this president since the recovery began in June 2009: sluggish at best. But that’s not news and therefore won’t have an impact.

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The GDP Report

The Commerce Department this morning gave a reading on the third-quarter 2012 Gross Domestic Product—the sum of goods and services produced in the United States. GDP climbed 2 percent (on an annualized basis) in July, August, and September, slightly above the predictions of economists. This was an improvement on the dismal 1.3 percent growth the economy saw in the second quarter, but still a long way from the sort of robust recovery that is needed to significantly bring down the unemployment rate and restore a sense of prosperity to the country.

Much of the growth was in consumer spending, especially for durable goods (such as automobiles, refrigerators, etc.), which saw growth at 8.5 percent. But business investment remained weak, with fixed investments (buildings and equipment, for instance) actually declining 1.3 percent after climbing 3.6 percent in the second quarter.  This might reflect caution ahead of the election and fear that the “fiscal cliff” of tax hikes and government spending cuts due January 1 might actually come to pass. Most economists think that that would send the economy right back into full-blown recession.

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The Commerce Department this morning gave a reading on the third-quarter 2012 Gross Domestic Product—the sum of goods and services produced in the United States. GDP climbed 2 percent (on an annualized basis) in July, August, and September, slightly above the predictions of economists. This was an improvement on the dismal 1.3 percent growth the economy saw in the second quarter, but still a long way from the sort of robust recovery that is needed to significantly bring down the unemployment rate and restore a sense of prosperity to the country.

Much of the growth was in consumer spending, especially for durable goods (such as automobiles, refrigerators, etc.), which saw growth at 8.5 percent. But business investment remained weak, with fixed investments (buildings and equipment, for instance) actually declining 1.3 percent after climbing 3.6 percent in the second quarter.  This might reflect caution ahead of the election and fear that the “fiscal cliff” of tax hikes and government spending cuts due January 1 might actually come to pass. Most economists think that that would send the economy right back into full-blown recession.

Exports shrank, reflecting the deepening economic problems in Europe. Imports also fell, but at a lower rate. Federal government spending also accelerated in the quarter.

This isn’t a game-changer in the election by any manner of means. Everyone knows the economic recovery, which began in June 2009, four months into Obama’s term, has been anemic at best, so this report is just a continuation of the status quo. The jobs report due out next Friday might be more significant as it could show a rise in unemployment, correcting the anomalous October jobs report that showed an unexpected .3 percent drop in unemployment. If unemployment were to rise above 8 percent again, just four days before the election, that would be very bad news for President Obama.

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On Economic Issues, Romney Wins Big

The post-debate polls taken last night seemed to more or less line up with the conventional wisdom forming on social media: President Obama won a narrow victory over Mitt Romney, helped late by escaping the Libya question—thought to be his Achilles’ heel—when Romney dropped the ball.

But that Libya exchange—in which moderator Candy Crowley intervened on Obama’s behalf and only afterwards seemed to realize that she had been wrong on the facts—also revealed the flip side of Romney’s lack of focus on Benghazi: his fluency and preparation for questions on the economy, and Romney’s continuing bet that the economy will overshadow the other issues in voters’ minds. Polls back this up, and the post-debate polls seemed to as well. While both the CNN and CBS polls gave Obama a hard-fought win on points, respondents to both polls gave Romney the win on the economy by wide margins. CBS reports:

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The post-debate polls taken last night seemed to more or less line up with the conventional wisdom forming on social media: President Obama won a narrow victory over Mitt Romney, helped late by escaping the Libya question—thought to be his Achilles’ heel—when Romney dropped the ball.

But that Libya exchange—in which moderator Candy Crowley intervened on Obama’s behalf and only afterwards seemed to realize that she had been wrong on the facts—also revealed the flip side of Romney’s lack of focus on Benghazi: his fluency and preparation for questions on the economy, and Romney’s continuing bet that the economy will overshadow the other issues in voters’ minds. Polls back this up, and the post-debate polls seemed to as well. While both the CNN and CBS polls gave Obama a hard-fought win on points, respondents to both polls gave Romney the win on the economy by wide margins. CBS reports:

Moments following the debate at Hofstra University in Hempstead, N.Y., 37 percent of voters polled said the president won, 30 percent awarded the victory to Romney, and 33 percent called it a tie. After some particularly animated exchanges between the two candidates, 55 percent of voters said Mr. Obama gave direct answers, but 49 percent also said that about Romney.

As for who would do a better job of handling the economy, the president made some headway on closing that gap. Before the debate, 71 percent said they believed Romney would, while only 27 percent said they thought Obama would; after the debate, 34 percent said the president would better handle the economy, with 65 percent saying Romney would.

And here’s CNN’s write-up of its in-house poll:

According to the survey, Obama had a 47%-41% edge on which candidate was more likeable. But on some key issues, Romney came out on top, including an 18-point lead on the economy.

“Mitt Romney was seen as better able to handle the economy, taxes, and the budget deficit among the debate audience, but it seems that issues were trumped, or at least blunted, by intangibles, including the expectations game,” says CNN Polling Director Keating Holland.

Obama’s victory on the “intangibles,” such as expectations and demeanor, should not be dismissed. Those are often what people remember most about debates. Additionally, a major goal for Obama was to fire up the base. They were despondent after the first presidential debate because of the old adage about parties: when the host no longer appears to be having fun, it’s time to go. But if Obama was able to inject some enthusiasm into his party faithful last night, he’ll take it.

Yet it must be acknowledged that in the voting booth, it’s probably a safer bet that intangibles won’t drown out issues. Romney has raised his favorability ratings and made himself seem judicious and presidential, so voters will probably consider this election as one between two plausible presidents. In such a case, it really does come down to issues.

Should Obama be concerned that he got flattened on the economy even in a debate in which he eked out a narrow victory? If the electorate thinks Obama is marginally more likable than Romney, but wildly inferior to Romney on the issue that determines most presidential elections and is expected to determine this one as well, how would such voters cast their ballots?

Additionally, the CNN pollster says Obama won last night in part by beating expectations. That amounts to: The president wasn’t nearly as terrible as he has been or as awful as voters expected him to be. That’s not a ringing vote of confidence; it’s a condescending pat on the shoulder.

CNN’s pollster also says Romney was better on taxes—there goes one of the pillars of Obama’s yearlong attack on Romney. Obama ran on cutting the deficit—he called George W. Bush “unpatriotic” for running up deficits that Obama is only rapidly adding to—and voters give Romney the edge there too. Obama hopes to gain some momentum after last night, but a campaign betting on a minor lead on “intangibles” suggests a campaign still spinning its wheels.

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Obama’s Teflon Coating Will Be Tested

It is telling that our expectations are so low these days that the latest dismal jobs report issued by the U.S. Labor Department is being viewed with some relief. It noted that the economy had added 114,000 jobs in September. That is, we are told, not so bad because that is around the figure most economists projected, even though it is below the total that is generally considered the number needed to account for normal population growth. The drop in the unemployment rate to the lowest point in the Obama presidency should not deceive us, because it is clear that many people have simply given up looking for work during what is the worst economic recovery since the Great Depression. Though President Obama may choose to highlight the 24th straight month with job growth since the end of the recession he inherited from his predecessor, with 12.1 million Americans still unemployed, a drop in the number of manufacturing jobs and temporary employment, we may be closer to the next Great Recession than to genuine recovery.

This is hardly the sort of situation that would normally bode well for the re-election of any incumbent president. Yet since President Obama’s poll numbers went up rather than down after an even worse report last month, it would be foolish to assume these discoursing numbers will hurt him. Earlier this week, I referred to Obama as the real Teflon president, since neither the recent revelation about his past use of racial incitement nor the security screw up in Libya (and the subsequent lies about it from the White House) or even a bad economy seemed to be enough to dent his standing in the polls. Yet all it takes to burst a balloon is one sharp jab. After the president’s awful performance in the debate with Mitt Romney on Wednesday, it could be that Americans will start to view the president’s litany of disasters with less equanimity than before.

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It is telling that our expectations are so low these days that the latest dismal jobs report issued by the U.S. Labor Department is being viewed with some relief. It noted that the economy had added 114,000 jobs in September. That is, we are told, not so bad because that is around the figure most economists projected, even though it is below the total that is generally considered the number needed to account for normal population growth. The drop in the unemployment rate to the lowest point in the Obama presidency should not deceive us, because it is clear that many people have simply given up looking for work during what is the worst economic recovery since the Great Depression. Though President Obama may choose to highlight the 24th straight month with job growth since the end of the recession he inherited from his predecessor, with 12.1 million Americans still unemployed, a drop in the number of manufacturing jobs and temporary employment, we may be closer to the next Great Recession than to genuine recovery.

This is hardly the sort of situation that would normally bode well for the re-election of any incumbent president. Yet since President Obama’s poll numbers went up rather than down after an even worse report last month, it would be foolish to assume these discoursing numbers will hurt him. Earlier this week, I referred to Obama as the real Teflon president, since neither the recent revelation about his past use of racial incitement nor the security screw up in Libya (and the subsequent lies about it from the White House) or even a bad economy seemed to be enough to dent his standing in the polls. Yet all it takes to burst a balloon is one sharp jab. After the president’s awful performance in the debate with Mitt Romney on Wednesday, it could be that Americans will start to view the president’s litany of disasters with less equanimity than before.

One bad debate will not alter the fact that the president still appears to be able to defy the laws of political gravity. It has long been apparent that his historic status as the first African-American president and the adulation that he has received from much of the public as well as an adoring press means that the rules that constrain other politicians do not apply to him.

But the debate told us a great deal about the president. It wasn’t just that he was off his game that night, but that the contemptuous manner with which he approached the ritual of asking the people to re-elect him revealed a side of his character that some Americans had not previously noticed. He behaved as if the whole exercise was beneath his dignity and that he didn’t need to bother presenting a reasonable defense of his policies and actions. The fact that his challenger showed himself to be far more able than he had been given credit for also altered the nature of the contest.

What we will discover in the coming days and weeks is if the debate turns out to be the sharp jab that will finally start to let some of the air out of the president’s hot air balloon. If Americans begin to think a bit differently about the man they elevated to the White House in the expectation that his hope and change mantra would transform the nation, then it is possible that many of the flaws that have been either forgiven or ignored will start to impact his standing in the polls. It may be that nothing will ever really scrape the Teflon coating off of the president, in which case he will be re-elected no matter what happens to the economy–including the growing prospect of a new recession in his second term that will be difficult to blame on George W Bush. But it could also be that what happened this week is the start of a process during which the rules of political gravity will start to bring the messiah of 2008 back to earth.

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The Jobs Report

The number of jobs increased an anemic 114,000 (with the numbers for both July and August revised upwards). The labor force participation rate barely ticked up, from 63.5 percent to 63.6. That’s still a dismal number. Long-term unemployment (over 27 weeks) edged up to 40.1 percent of the unemployed.

This year has seen an average job growth of 143,000 per month. In 2011 it was 153,000. But the number that will be in the headlines is 7.8 percent.

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The number of jobs increased an anemic 114,000 (with the numbers for both July and August revised upwards). The labor force participation rate barely ticked up, from 63.5 percent to 63.6. That’s still a dismal number. Long-term unemployment (over 27 weeks) edged up to 40.1 percent of the unemployed.

This year has seen an average job growth of 143,000 per month. In 2011 it was 153,000. But the number that will be in the headlines is 7.8 percent.

That’s the unemployment rate for September, down fully three-tenths of a percent from August and the first time it has been under 8 percent since Obama took office in January 2009, when it was 7.6 percent; 7.8 percent is also, presumably coincidentally, the unemployment rate when Ronald Reagan was re-elected in 1984 (although the rate was falling fast that year), the highest unemployment rate at which a president was re-elected since FDR. It’s also the biggest monthly decline since January 2011, although economists (who had been predicting job growth of 118,000, pretty close to the actual number) had been predicting no change at all.

The White House is happy this morning.

 

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