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BILL Clinton's campaign advisers are still right: for Barack
Obama, it really is the economy, stupid.
One respectable forecasting model puts the US president with
a hair over half the two-party vote on November 6 2012. A Breakingviews
calculator shows how even slight changes in the economic growth rate before
then could tip the result dramatically.
Among the best economic indicators for American elections
are measures of personal income. The unemployment rate, which fell sharply in
November but at 8.6% is still worryingly high for a sitting president, is a
favourite of pundits – but it's not well correlated to election votes. The rate
of change of unemployment may be better, but that's probably already reflected
in income growth.
Ray Fair of Yale University has developed a model that
predicts the vote share reasonably well when tested on the 24 presidential
elections since 1916. Its main inputs are the real growth rate of per capita
gross domestic product (GDP) in an election year and inflation throughout the
ending presidential term. Fair has a third input to incorporate the
"feelgood factor" of short periods during the term when growth is
particularly robust.
The Breakingviews calculator is based on Fair's model, but simplifies it and turns the result into a probability of winning.
Assuming 2.5%
annual GDP growth from the last quarter of 2011 until the election and
inflation running just under 2%, Obama's share of the two-party vote comes out
at 50.3%. (This ignores the potential distortions of an independent candidate,
and of the electoral college that actually chooses the president.)
That slim-looking margin converts into a probability of
winning of about 54%.
For more evidence that things are on a knife-edge 10 months
out, consider figures from Intrade. On Wednesday, the prediction market gave
Obama a 52% chance of re-election. His approval rating - around 45% as of
January 2, according to Gallup - seems to bode less well. It is early to read
too much into that, and Obama's approval has lately edged upward, but he will
be in trouble if it stays too far below 50%.
Breakingviews has built a "swing factor" into the calculator to incorporate users' own adjustments. But the economy is the key.
For instance, if growth hits 3%, the Democrat Obama's probability of winning
veers to 70% or so. Conversely, weaker growth than hoped could easily put a
Republican opponent - let's call him Mitt Romney given his Iowa win - in the
White House.
- Reuters
* Richard Beales is a Reuters Breakingviews columnist. The
opinions expressed are his own.
