A Bad Economy Could Cost Obama Re-Election

Obama Bites Lip Jobs

Photo: AP Photo/Susan Walsh

Economic consulting firm IHS Global Insight thinks the economy may well sink President’s Obama’s reelection effort, at least according to its forecasting model:

Based on the expected state of the economy, President Obama faces an uphill battle to win reelection in 2012. …

Over the years, statistical attempts to explain and predict U.S. presidential election results have yielded two overarching themes. First, Americans tend to vote their pocketbooks. If the economy is growing strongly and unemployment is low, the incumbent party has a very good chance of retaining office. When the economy is faltering, U.S. voters will more likely vote for change. Second, Americans tend to favour an incumbent president running for reelection. If the economy is weak enough, however, an incumbent president can lose, as Jimmy Carter learned in 1980 and George H. W. Bush did in 1992.

Based on the likely state of the economy in 2012, President Obama faces a steep uphill task to secure reelection. Based upon our forecast for the economy, our election equation projects just a 43.5% share of the two-party vote for the president, i.e., a heavy defeat.

It may already be too late for Obama, given the lengthy lag between an economic turnaround and voter economic perception. Then again, maybe the grey Davis model—use a huge fundraising advantage to squeak out a win—can be effectively employed by Team Obama.

But it’s not just IHS Global. Yale economist Ray Fair has a well-known election forecasting model that uses three economic variables to makes its call: a) growth rate of real per capita GDP in the first three quarters of 2012; b) growth rate of the GDP deflator in the first 15 quarters of the Obama administration, c) number of quarters in the first 15 quarters of the Obama administration in which the growth rate of real per capita GDP is greater than 3.2 per cent at an annual rate.

Last August, I plugged the economic forecast of JP Morgan into the Fair model. Its economic team, at that time, saw the overall economy growing just 1.3 per cent next year with an unemployment rate of 9.5 per cent as Election Day approaches. Under that scenario, Obama would get just 47.7 per cent of the two-party vote. It’s unlikely Obama could win the electoral college trailing that badly in the popular.

This post originally appeared on the American Enterprise Institute.

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