New York Times blogger Nate Silver recently did a neat analysis of 43 economic variables to determine which had the most and least influence on past presidential election outcomes. Silver found that no one variable by itself explained more than half of election results in the postwar period.
As Silver puts it, “The economy is hugely important to presidential elections, but there are no magic bullets.” Indeed, election forecasting models usually employ more than one economic variable or combine one or more variables with polling data or some other non-economic statistic. Here are the top 20 variables that Silver looked at:
Where’s the unemployment rate on the list? While the rate of change in the U-3 unemployment rate was #3 on the list, the rate itself was #40, showing no statistical impact. And who knows, given the incredible shrinkage of the workforce, maybe even the U-3 rate of change won’t be too influential this year.
Silver himself did an additional calculation which looked at President Obama’s approval ratings and the rate of job growth. Silver concluded that assuming Obama’s ratings remain constant, 151,000 net new jobs a month is the inflection point: “If payrolls growth averages 175,000 per month, Mr. Obama will probably be a favorite, but not a prohibitive one. If it averages 125,000 per month, he will be a modest underdog.” During the past three months, job growth has averaged 201,000. And as Silver notes, “last month’s Wall Street Journal forecasting panel predicted payroll growth of 155,000 jobs per month through the end of 2012.”
So it looks like a close election. We’ll see what happens. But I thought it would be interesting to look at the current trends of the top ten variables Silver cites:
1. ISM manufacturing index:
2. Change in non-farm payrolls:
4. Real personal income (ex-transfers)
5. Employment-population ratio:
6. Real GDP:
7. Real GDP per capita:
8. Real final sales:
9. Real disposable personal income per capita
10. Real disposable personal income
Bottom line: A quick scan to me looks like jobs are showing some life, but incomes not so much.