Saturday, October 2, 2010

Two important October economic releases could seal the fate of Democrats

image Two key releases of economic data are coming in the next few weeks, and they could turn a pending electoral disaster into a catastrophic tsunami for Democrats.  On Friday, October 8, the Bureau of Labor Statistics releases the monthly payrolls and unemployment picture.  The consensus forecast is a net-zero gain (meaning private sector payroll gains will cancel out losses from Census temporaries) to a net-negative of around 10,000.  The unemployment rate is expected to rise slightly to 9.7% but a decrease in the participation rate (already at a morbidly low 64%) could put enough downward pressure for the rate to stay at 9.6%.  A decrease in the unemployment rate is highly unlikely—last month’s report had an unrounded estimate of 9.643%.  More likely is that the unrounded rate moves up by the few hundredths of a point needed to round to 9.7%.

On Friday October 29, the Bureau of Economic Analysis releases the preliminary estimate of Third Quarter GDP growth.  The consensus is for a number similar to the Q2 estimate of about 1.7% to about 2.0%.  A US economy growing less than a 2.5% annualized rate is too sluggish to create enough jobs to keep up with population growth and we head into the biggest quarter of the year for retail sales.

These are the last two major indicators of economic health to be released before the November 2, 2010 mid-term elections, and they can only hurt Democrats, not help them.  Having the numbers beat consensus estimates by a wide margin—meaning that economic forecasters badly blew their estimates—would be a too little, too late proposition for the party in power.  The clock has long been ticking on energizing a voting base, and the Republicans are way ahead on that scorecard.  Conversely, having the numbers come in significantly below consensus estimates—again meaning that economists badly blew their forecasts—would be a hammer blow. 

But if the two indicators show up in line with consensus forecasts, it means voters go to the polls with the fresh taste of Democrat fail in their mouths.  The narrative from Monday, November 1 to Tuesday, November 2 will go something like this:

”With the latest economic figures showing the Democrats’ ambitious plan to rejuvenate a sagging economy has failed to gain real traction after two years in power, voters head to the polls on Tuesday in a referendum on President Barack Obama’s policies.

“Fresh polling shows Republicans are likely to win back the House of Representatives and make a serious run at taking the Senate, and this comes amid a backdrop of stubbornly high unemployment, sluggish economic growth, depressed housing prices and sagging retail sales.”