Will the US economy bail out President Obama and the Democrats in 2014 — and maybe 2016, too — after the disastrous Obamacare rollout?
Here is political analyst Greg Valliere of Potomac Research:
Obama can give a great speech in South Africa, he can take credit for the plunging deficit and relative peace on the budget, he can motivate Democrats by emphasizing immigration reform and a minimum wage hike — but there’s only one issue that really counts: the economy. That’s perhaps the most important story of the second half — both for Wall Street and Washington. Noisy cynics say they don’t believe the data or that the economy is still stagnant, but it’s increasingly clear that growth is picking up. If unemployment is 6-1/2% and trending lower by Labor Day, the 2014 elections might not be a disaster for Democrats after all. It’s way too early to count Obama out. He’s arguably the worst politician in the Oval Office since Jimmy Carter, but events shape presidencies. The great trick, as Bill Clinton discovered, is to catch a cyclical wave of economic growth and get out of the way. The jury is out on whether Obama is street-savvy enough to realize this — but after his disastrous 2013, he suddenly has a plausible chance for a comeback as the economy recovers.
The argument is plausible. Next year really might be the year the US economy shows some real pep. Goldman Sachs, for instance, is forecasting GDP growth of 3% to 3.5% in 2014, which would be the first year since 2005 that the economy grew at 3% or more. As for jobs, the bank expects average payroll gains of 225,000 in 2014 and 200,000 in 2015 before moderating a bit to 1750,000 in 2016. If Goldman’s models are correct, the unemployment rate will hit 6.5% in the second half of 2014 and 6% in mid-2015. So based on all that, it’s not unreasonable to expect a 2016 jobless rate that starts with a “5.”
The core of Goldman’s bullish forecast is based on (a) recovering residential construction, (b) declining fiscal drag from the sequester and tax cuts, (c) stronger consumption thanks to a fall in the debt-to-income level, and (d) stronger business investment based on high profits, easing lending standards, and a relative low level of capital stock. Two recent data points support the Goldman view.
So the other big question is whether Obamacare will be perceived by midterm voters as anything close to an Iraq War level mistake. By the time of the 2006 midterm elections, the unemployment rate was 4.5%, the economy had created more than 4 million jobs the previous two years, and the economy was growing around 3%. Yet anti-war sentiment enabled Democrats to capture the House and Senate.
The Obamacare website seems to be working better, but back-end problems remain. Beyond that, there are issues of policy changes and cancellations, narrow provider networks, a risk pool that’s older and sicker than expected, and a possible second wave of rate shocks later next year. And as investment strategist Ed Yardeni points out:
Obamacare could still pose a risk to the economy if enough people reduce their spending because they remain uncertain about whether they will have coverage and about their out-of-pocket costs. There are reports that the backend of the system isn’t working so insurance companies aren’t receiving the information they need to actually provide coverage. In addition, many consumers are facing the sticker shock of not only higher premiums but also higher deductibles.
I will give political scientist Ray Fair and his well known election forecasting model the last word:
The August 5, 2013, forecast from the US model was very optimistic about the economy for the last half of 2013 and for 2014, with 4 good news quarters. The November 11, 2013, forecast is much less so, with only 1 good news quarter, the third quarter of 2014. The predicted vote share is now 49.14, a slight Democratic loss. The main conclusion is the same as it was in August, namely that if the economy grows moderately, the election is predicted to be close.