Economy might be gaining traction, new data suggest

View Photo Gallery — Economic pictures: Amid signs that the U.S. economy is slowing, the government released its latest jobs report Aug. 3. The U.S. added 163,000 jobs in July, but the montly unemployment rate inched up to 8.3 percent, the Labor Department said. The contradictory pair of figures illustrate the muddled state of the economy.

By Zachary A. Goldfarb and Michael A. Fletcher,

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.

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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.

In addition, the Commerce Department said Thursday that the trade deficit declined by $5.1 billion to $42.9 billion in June as the country imported less and exported more than expected. Lower oil prices helped drive the trend, which bolsters economic growth.

These data points add to other recent evidence of a recovering economy.

The housing market, which had been in a protracted and agonizing decline, seems to have bottomed. Home prices in the spring jumped by the most in seven years.

Obama campaign officials say that voters won’t make their decisions based only on economic performance. Rather, they say, they’ll make decisions by comparing Obama’s economic vision with Romney’s. Polls show that despite Obama’s disadvantage in the economy, the election is statistically tied.

“Americans will face a choice between a president who believes we should continue to build the economy from the middle class out,” Obama spokesman Ben LaBolt said, “and Mitt Romney, who believes that placing all his chips on $5 trillion tax cuts for millionaires and billionaires will magically create middle-class jobs, when it never has in the past.”

Even if the economy were now beginning to boom, it could be happening too late for the president. Alan I. Abramowitz, an Emory University professor who has developed a model for forecasting presidential elections, said that economic data in the months before Election Day make less of a difference because most people have made up their minds well before then.

“The number of persuadable voters is really small and shrinking, and it is not like voters are sitting there waiting for the latest economic numbers to come out,” Abramowitz said. “And undecided voters tend to be less interested in politics than others, meaning they . . .probably are unaware of these developments.”

In running for re-election in this economy, Obama is fighting tough historical trends. Few presidents have won re-election with unemployment and growth at the levels they are at — but, then again, there have been relatively few examples overall. And some political scientists say it is more important for the economy to show signs of getting better, even if it is not that healthy overall.

The economy grew at a rate of 1.5 percent in the second quarter, which would be the slowest rate of economic growth in a presidential election year of all presidents since 1948 but one — Jimmy Carter — according to a recent analysis by James E. Campbell, a political scientist at the University of Buffalo.

“The long and the short of this,” Campbell wrote, “is that President Obama’s economic record is not one that voters have found to have been acceptable in past presidencies.”

Brad Plumer contributed to this report.

Friday, August 10, 9:34 AM

http://www.washingtonpost.com/business/economy/economy-might-be-gaining-traction-new-data-suggest/2012/08/09/23fadef8-e23a-11e1-98e7-89d659f9c106_story.html