Obama touts Chrysler success but remains hostage to a tepid economic recovery

By Dan Balz
Washington Post Staff Writer
Wednesday, November 24, 2010; 6:08 PM

President Obama spent Tuesday in Indiana touting the economic recovery and the policies he has pursued. But the latest projections by the Federal Reserve constitute troubling news for the president and his advisers as they begin to look toward 2012.

Obama had a good story to tell in Indiana. On the day of his visit, Chrysler announced that it would put $800 million into two of its facilities in Kokomo. That is in addition to a $300 million investment Chrysler announced earlier this year.

Without federal bailouts, opposed by Republicans in Congress, the auto company would not have been in a position to do so. Obama gave credit to the skilled workers of Kokomo but also took credit for making an unpopular decision to pour billions of taxpayer dollars into an industry that long has been in decline.

"We made the decision to stand with you because we had confidence in the American worker, more than anything," he said. "And today we know that was the right decision. . . . We're coming back. We're on the move."

Still, Obama and Vice President Biden, also in Indiana, tempered their optimistic remarks with a dose of reality, mindful that whatever improvements Kokomo is seeing are only a start on the road back for the nation's economic prosperity and might not be matched yet elsewhere.

"No, we're not out of the woods yet," Obama said. "It took a lot of years to get us into this mess. It will take longer than anybody would like to get us out."

Longer, perhaps, than the president realized, according to the Fed. Gross domestic product rose at a 2.5 percent annual rate last quarter, according to revised figures. The Fed's forecasts project growth in the range of 3 to 3.6 percent next year.

That's a clear improvement from where the economy has been, but it's hardly the kind of robust growth needed to produce jobs at a pace sufficient to bring down the jobless rate dramatically. The Fed's unemployment forecasts were a reminder that, despite signs of recovery, the road back from the recession will be far longer than many in the past.

Unemployment is at 9.6 percent; the Fed projects that by the end of next year, the rate could decline to about 9 percent. Under the growth scenarios envisioned now, the unemployment rate could still be brushing 8 percent around the time of the 2012 elections, which would spell political trouble for the president.

Much will depend on public perceptions at that time. If the public believes by the summer of 2012 that the future is much brighter, Obama will be the beneficiary. In 1984, President Ronald Reagan's reelection ads declared that it was "morning in America" when the unemployment rate was still more than 7 percent.

Still, 7 percent is a good deal better than 8 percent. And the growth rates that produced morning in America were significantly greater than those that the Fed and others are forecasting over the next 18 months. Reagan's economy grew at rates of 7 to 9 percent quarterly from the middle of 1983 to the middle of 1984, double what appears likely over the next year and a half.

Obama faces the prospect of having to be a cheerleader for a tepid recovery, talking up public confidence in order to talk up his political standing. He will be in the difficult position of trying to convince many Americans, who believe his policies have not worked and will not, that they are in fact bringing the economy back.

Another question for Obama and his economic team: How much more can they do to accelerate the recovery? He has been criticized for taking his eye off the economy and devoting much of his first year and a half in office to health care.

Even after the health-care bill became law, the White House had trouble convincing people that it was fully focused on the economy. Many people have blamed a poor communications strategy, but there's more than a communications problem. The president must be able to draw a direct connection between actions taken and results produced.

That's now possible with the auto bailouts, as Obama was able to show Tuesday, though the domestic auto industry cannot bring back many of the jobs that have been lost over many years of decline. Making the case about the stimulus package has been far more difficult.

Many events will shape Obama's reelection prospects in 2012, but none more so than the state of the economy. Tuesday's juxtaposition of the president's trip to Kokomo and the release of the Fed's latest assessment highlight the promise and the pitfalls ahead for the president. For now, Obama is hostage to a slow recovery and seemingly without dramatic policies to change that trajectory or public perceptions.

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