US Chamber sees limp economy, high unemployment rate in election year

US Chamber of Commerce President Thomas Donohue offered a grim outlook Thursday for cutting the politically sensitive unemployment rate, citing slow economic growth.

US Chamber of Commerce President Thomas Donohue offered a grim outlook for cutting the politically sensitive unemployment rate ahead of Election 2012, citing a forecast for relatively weak economic growth.

“The state of American business is improving – but it is doing so weakly, slowly, and insufficiently to put our nation back to work,” Mr. Donohue in his annual State of American Business address. The Chamber is the nation’s largest organization representing both small and large businesses. 

A key challenge to President Obama’s reelection effort is the fact that 23 million Americans are unemployed, unwillingly working part-time, or have given up looking for jobs. To put these individuals back to work, “our economy has to grow much faster than it is today,” Donohue said. The Chamber predicts the US economy “will actually slow down in the early months of the year,” he said. 

The Chamber estimates economic growth will average about 2.5 percent in the first six months of 2012 and then “work its way back to about 3 percent by the end of the year,” Donohue said. That prediction is in line with forecasts of private forecasting firms. Economists surveyed by Bloomberg News predict growth of 2.3 percent for 2012, while Moody’s Analytics predicts economic growth of 2.6 percent.

The government reported Thursday that more Americans than forecast filed for jobless benefits last week. Jobless claims climbed by 24,000 to 399,000 in the week ended Jan. 7, the Labor Department said, in another sign of a challenging employment picture.

Monthly changes in the jobless rate are unpredictable. But over the past 50 years, annual economic growth has had to exceed 3.5 percent to keep the jobless rate from rising, says the nonpartisan Congressional Research Service.

The expectation that the US economy will grow at a rate much lower than that in an election year – threatening an increase in the jobless rate – could have major political significance. In December, the unemployment rate fell to a 8.5 percent, a three-year low. No American president since Franklin Roosevelt in 1940 has been reelected when the jobless rate was higher than 7.2 percent. Moody’s Analytics predicts that the rate in 2012 will average 8.7 percent.

While the link is strong between the unemployment rate and a president’s reelection prospects, there are some caveats, Nate Silver notes in his 538 blog. One is that President Ronald Reagan won resoundingly in 1994, when the jobless rate was 7.2 percent. So the precise danger point for an incumbent president could be a jobless rate in the neighborhood of 7.5 percent, Mr. Silver notes. Another is that, given the severity of economic problems the US has experienced in recent years, voters may be willing to forgive an even higher rate as long as the jobless figure is moving in the right direction. President Roosevelt won in 1940 with a jobless rate that had declined to 14.6 percent.

Thursday's economic predictions from the Chamber will no doubt add to worries in the Obama campaign, given the apparent importance of a declining jobless rate as Election Day approaches.

In his address, Donohue also stressed the nation’s economic strengths, including sophisticated global firms, strong technology and educational resources, and abundant domestic energy. Still, he said, “America’s most pressing economic challenge is the lack of sufficient growth to create jobs, expand incomes, reduce government deficits, and fund essential programs.”