Economy might be gaining traction, new data suggest

Posted on August 10, 2012

After a spring and summer of weak economic indicators, a flurry of fresh data suggest key sectors of the economy might be gaining traction, just as the battle for the White House enters the final round.

The long-moribund housing market has bustled to life, with prices and new-home construction rising in recent weeks. Hiring, so weak earlier this year, picked up last month. And on Thursday, the government reported an acceleration of a downward trend in the number of people seeking unemployment insurance, as well as a sharp improvement in U.S. exports.

Together, the signs point to an improving economy, a potentially important shift for President Obama’s re-election campaign.

“The better the economy between now and November, the better it is for Democrats and Obama,” said Ray C. Fair, a Yale University professor who studies the relationship between economics and electoral outcomes.

It is by no means a sure thing that the economy recovers in a sustained way, nor is it a sure thing that it will lift Obama’s prospects enough to make his re-election a certainty. And the improvements in the economy have come after the end of June, when many voters have already cemented their views on the presidential candidates, political scientists say.

Republican candidate Mitt Romney has campaigned as a more effective steward of the nation’s economy — arguing that Obama’s policies have failed to lift the financial fortunes of ordinary Americans. And polls show voters tend to agree with Romney.

In a July poll by The Washington Post and ABC News, Romney had a slight lead, 49 percent to 44 percent, over Obama on the question of who would better handle the economy. By 54 percent to 44 percent, Americans disapproved of Obama’s handling of the economy.

Romney’s campaign dismissed the idea that the economy is showing new strength. “We have had a record-high level of unemployment with rates above 8% for 42 straight months, ticking up to 8.3% just last week,” spokesperson Andrea Saul said by e-mail. “President Obama has proven he is unqualified to lead us to an economic recovery.”

Analysts say the economy faces big risks. These include the financial crisis in Europe and the chance of a new recession if an automatic series of tax hikes and deep spending cuts takes effect at year’s end. The uncertainty created by the potential has already been a drag on growth. What’s more, millions of people still owe more than their homes are worth.

“The national psyche remains on edge, and the economy remains vulnerable to anything else that may go wrong,” said Mark Zandi, chief economist for Moody’s Analytics.

Yet the latest data suggest that Obama has several reasons to be somewhat optimistic.

On Thursday, the Labor Department said that the number of people who were newly filing for unemployment insurance dropped to 361,000.

That was better than expected and continued a downward trend. Last week, the agency reported that companies took on more workers in July, as 163,000 Americans gained employment.

Zachary Goldfarb & Michael A. Fletcher, Washington Post