Unemployment report: January job gains have economists rethinking outlooks
By Peter Whoriskey and David Nakamura,
An unexpectedly rosy jobs report set off a chain reaction Friday, upending economists’ gloomy predictions for the coming year, leading to a surge on Wall Street and potentially boggling the political calculus of the 2012 presidential campaigns.
The surprise — that the unemployment rate had dipped for the fifth straight month, to 8.3 percent — was first reflected in the stock market, where the Dow Jones industrial average soared to its highest mark since the beginning of the financial crisis. The tech-heavy Nasdaq, meanwhile, hit an 11-year high.
By noon, President Obama, whose reelection chances have been threatened by the nation’s economic woes, seized on the figures as proof that the recovery from the recession “is speeding up.”
“This morning we received more good news about our economy,” Obama said during an appearance at an Arlington firehouse. “Still, far too many Americans need a job or need a job that pays better than the one they have now. But the economy is growing stronger.”
The report forced his presidential rivals to adjust their rhetoric about the economy, which has played a leading role in the Republican debates. But they appeared ever ready to remind listeners that the unemployment rate remains elevated.
Exactly what lies ahead for the U.S. economy is far from clear. Even the more optimistic economists note that another downturn in Europe, or a spike in oil prices, or another debt showdown in Washington — or some other unexpected shock — could derail the nation’s unanticipated economic momentum.
But the Friday report depicted an economy that is gaining traction.
The number of jobs has been rising at a rate of 200,000 monthly, and those jobs are appearing in many parts of the economy, signaling a broad recovery. The growth was robust in the leisure and hospitality business, in the health-care industry and in manufacturing, which added 50,000 jobs, a higher monthly figure than at any time since 1998.
For the past few months, the stop-and-start economic recovery has shown tentative signs of unanticipated strength, and Friday’s report of another significant drop in the unemployment rate lent credibility to a bullish view, some economists said.
“This is a game changer,” Ian Shepherdson, chief U.S. economist at High Frequency Economics, said of Friday’s employment figures. “The payroll numbers validate, in the market’s eyes, what all the other data are saying.”
The nation’s economic forecasters, many of whom had predicted that the unemployment rate would remain stubbornly high this year, seemed to back off their gloomiest positions.
The Congressional Budget Office has predicted 8.9 percent unemployment for the year; the Federal Reserve has predicted between 8.2 percent and 8.5 percent for the year. Likewise, Moody’s Analytics had expected the unemployment rate to remain at 8.5 percent through the end of the year.
Moody’s Analytics, for one, is now reconsidering its predictions.“The collective psyche seems to be turning a bit more optimistic,” said Marisa Di Natale, the firm’s director of economic research. “We’re certainly going to revise our forecast.”
The unemployment figures were startling enough that some analysts wondered whether they were correct. Friday’s figures from the household survey were the first to incorporate the new population numbers from the 2010 Census. But the new unemployment rate was unaffected by the change, the Labor Department said.
The nation’s economy has been central to the presidential campaign rhetoric so far, with Republican candidates chastising the Obama administration for failing to pull the country out of the recession more quickly.
Even with the new jobs figures, a central point of their attack remains unblunted: The unemployment rate remains above 8 percent.
“Unfortunately, these numbers cannot hide the fact that President Obama’s policies have prevented a true economic recovery. We can do better,” former Massachusetts governor Mitt Romney said in a statement as he campaigned in Nevada the day before the state’s GOP caucuses.
Former House speaker Newt Gingrich, when asked on CNN whether Obama deserves any credit for the lower unemployment rate, scoffed: “Give him some credit. If it makes you happy, give him some credit.”
Obama’s campaign team, and some political scientists, believe that voters are more likely to be swayed by the direction the unemployment rate is moving — downward — rather than its exact level.
Jobs and the campaign
Lynn Vavreck, an associate professor of political science and communications at UCLA, has studied the effect of gross domestic product and the unemployment rate on presidential campaigns going as far back as 1952.
Her analysis shows that there appears to be little or no connection between an incumbent president’s vote share and the unemployment rate.
But there is a clear connection between votes for the incumbent and the direction the unemployment rate is moving.
“Is it good that the unemployment rate is dropping for Obama? Yes, it’s good,” Vavreck said. “Does it matter what it drops to? No. That’s actually pretty irrelevant.”
She said there is no particular “magic” unemployment rate that would guarantee his reelection.
“The trend since this president took office is what’s most significant,” said an Obama campaign official, speaking on the condition of anonymity to discuss strategy. “It’s the story over time as the president has taken action to address the historic economic challenges he faced when he came into office.”
On its Web site, the Obama campaign posted a chart that illustrated 23 consecutive months of private-sector job growth and encouraged supporters to e-mail it to friends “to make sure people know the good news about President Obama’s record on jobs.”
The chart included a summary of White House initiatives since Obama took office, including the Recovery Act, which provided a $787 billion stimulus; a bailout loan to the auto industry; and the payroll tax cut.
The campaign official said the chart had already become one of the campaign’s most popular social media items, having been e-mailed and posted on Facebook and Twitter hundreds of thousands of times by Friday afternoon.
Staff writers Felicia Sonmez and Philip Rucker in Washington and Paul Kane and Dan Balz in Nevada contributed to this report.
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