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Obama's reelection bid brightens with improving economic signals

His campaign can face the next eight months with guarded optimism because Europe appears ready to take stronger action to confront its debt crisis, gas prices have retreated recently and economists have become more optimistic about job growth.

April 23, 2012|By Don Lee, Los Angeles Times
  • The Obama administration has been so concerned about the debt crisis threat from Europe that it established a sort of war room in the basement of the Treasury building, with dozens of analysts and economists monitoring developments around the clock. Above, President Obama speaks during a round-table discussion at Lorain County Community College in Elyria, Ohio last week.
The Obama administration has been so concerned about the debt crisis threat… (Brendan Smialowski, AFP/Getty…)

WASHINGTON — — From the day he entered the White House, the biggest threat to Barack Obama's chances of becoming a two-term president has been the battered state of the U.S. economy.

There have been new signs of trouble this spring: slower job growth, higher gasoline prices and fresh fears over the European debt crisis. Yet Obama's prospects on the economic front may be brighter than they now look.

This past weekend brought encouraging signs that Europe is ready to take stronger action to confront its still-serious debt problems. During the spring meeting of the International Monetary Fund, which concluded Sunday, member nations pledged to nearly double the funds available to the globe's emergency lender to address future crises.

Top finance officials from the U.S. and other world powers who attended IMF and World Bank meetings in Washington last week agreed that the outlook for Europe has improved. The European Central Bank late last year lowered rates and flooded the continent's financial system with cheap credit.

Faced with widespread domestic concern over the U.S. budget deficit, the Obama administration avoided making new financial pledges to the IMF. And Treasury Secretary Timothy F. Geithner and other officials warned that European leaders must do more to address their problems.

Of course, any new crisis — including war in the Middle East — could upset all calculations. But barring such a catastrophe, the Obama campaign can face the next eight months with guarded optimism.

Obama "isn't going to get a lot of growth from Europe, and there may be more bad headlines" on the debt crisis, said Jacob Kirkegaard, a research fellow at the Peterson Institute for International Economics. But "the Obama administration can rest a little bit more" thanks in part to increased IMF resources and central bank efforts to ease Eurozone problems.

Europe's debt crisis during the last few years has been a major obstacle to the U.S. recovery, frequently jolting financial markets and undermining confidence in the global economy. American businesses send hundreds of billions of dollars in exports to Europe every year and have more than $1 trillion in direct investments in the continent.

The Obama administration has been so concerned about the threat from Europe that it established a sort of war room in the basement of the Treasury building, with dozens of analysts and economists monitoring developments around the clock. The European Central Bank has lent more than $1.3 trillion to banks in the region to help stabilize it.

Also, with fresh pledges from many of the IMF's member nations, the 188-nation institution now has more than $700 billion at its disposal to contain the crisis. But that alone might not fix the Eurozone's problems.

"Policymakers need a comprehensive strategy that tackles … debt sustainability, weakness in the banking sector and economic growth," said Enam Ahmed, an analyst in London for Moody's Analytics.

Yet many experts now see smaller odds that Europe's debt problems will deliver big shocks to markets or other dramatic developments — at least in the near term.

The Obama administration's relatively low-key efforts during last week's meetings of high-level finance officials appeared to reflect the diminished worries in the White House that Europe's debt crisis will blow up in a big way before November.

"I think for the presidential election, the Obama side is feeling fairly confident," said Simon Johnson, an MIT professor and former IMF chief economist. "They would be coming much harder if they thought this was a clear-and-present danger."

More worrisome for Obama and his reelection may be another economic wild card: high oil prices. But prices have retreated a bit in the last couple of weeks, and there are indications they're unlikely to go much higher.

And so far, higher pump prices haven't crimped a resurgence in consumer spending. Consumer confidence measures have gradually moved up this year.

Many economists have become more confident about prospects for economic growth and corporate sales and profits than at the start of this year, according to a new survey released Monday by the National Assn. for Business Economics.

The April survey found member economists, who are employed by companies or industry associations, also were much more optimistic about employment over the next six months. That may seem at odds with March's disappointing jobs report and weak jobless claims data in early April that fanned worries of a spring stall.

Associated General Contractors of America Chief Economist Ken Simonson, who analyzed the survey, said some of the latest signs of slowing appear to be weather-related. The warm winter brought forward some of the hiring and economic activity, he said.

On the whole, U.S. economic fundamentals are on much firmer footing compared with spring 2011, according to economists.

"We don't have as great a deal to fear from either the European debt crisis or oil prices," Simonson said.

Obama, of course, may still face big economic risks from upcoming government tax and spending cuts. But those are not slated to happen until the start of next year — well after the election.

don.lee@latimes.com

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