Republicans reaping rewards of the recession

Steven Stanek, Foreign Correspondent

• Last Updated: November 05. 2009 11:55PM UAE / November 5. 2009 7:55PM GMT

WASHINGTON // Much has been made this week of Democratic defeats in two high-profile elections, but a better indicator of their political fortunes will come today, when the US government releases its monthly unemployment report.

The US unemployment rate stands at 9.8 per cent for September, a 26-year high, and many economists forecast a 10 per cent unemployment rate for October, a threshold crossed only a handful of times since the Second World War, according to statistics from the US bureau of labour.

Though an arbitrary marker to many economists, 10 per cent unemployment is a highly symbolic data point that could undermine the president Barack Obama and his fellow Democrats as they attempt to sell themselves to the American public as the party that pulled the economy “back from the brink”.

Such grim statistics would dominate the news cycle, stoke already high anxieties and eclipse the encouraging economic news that Democrats have highlighted in recent weeks.

Even if it does not come this month, most economists expect the unemployment rate to surpass 10 per cent in the near future, raising the inevitable question for the Democratic party: will jobless figures improve in time for the 2010 midterm elections?

The job market, one of the last aspects of the economy to recover from a recession, is also the one with the greatest impact on the way voters cast their ballots. Reaching 10 per cent unemployment, though not the highest rate in recent history – it reached 10.8 per cent in 1982 – could easily turn into a campaign mantra for Republicans, according to Terry Holt, the spokesman for George W Bush’s 2004 presidential campaign.

“It’s the main question to continue to ask over and over again: where are the jobs?” said Mr Holt. Democrats “have to demonstrate that they know how to run an economy before they’ll be given another chance to be re-elected”.

Republicans have long seen the unemployment figures as an Achilles heel for Democrats. John Boehner, the House minority leader, has for months pointed out that nearly half of the seven million jobs lost since the recession started in December 2007 have been lost on Mr Obama’s watch.

Bob McDonnell, a conservative Republican who handily won Virginia’s gubernatorial election on Tuesday, ran primarily on promises to create jobs. His campaign is already being cited as a blueprint for defeating Democrats next year.

The Obama administration, for its part, has frequently sought to emphasise more flattering data suggesting the economy is recovering, as the vast majority of economists said in a survey last month by the National Association for Business Economics. While the number of US jobs continues to dwindle, the pace of job loss has slowed. The country’s GDP grew at a rate of 3.5 per cent in the third quarter, the strongest growth in two years. Pending home sales in September rose by more than six per cent, trumping analysts’ expectations.

Last week, the White House released a report showing that the stimulus helped create 640,000 jobs, but Mr Obama has also prepared voters for more job losses. During a meeting on Monday with his Economic Recovery Advisory Board, Mr Obama said he expected “losses in the weeks and months to come”.

Michael Englund, chief economist for Action Economics in Colorado, said he expects the lag to last well into next year. “The unemployment rate doesn’t change very quickly,” said Mr Englund, whose firm forecasts the rate to hit 9.9 per cent in October, rise over the next several months, and then fall back to 9.9 per cent by October 2010. “To get to an outright low unemployment is going to take years.”

Unemployment figures – compiled through data gathered in door-to-door surveys and open to individual interpretation – are not the best indicator of the US job market, many economists say. They prefer statistics showing payroll changes and labour productivity.

Still, Mr Englund noted: “It’s a pretty good gauge of how people feel.

“As long as the public perceives that jobs are hard to get and their job is at risk,” he said, “they are going to have a high level of economic anxiety.”

sstanek@thenational.ae