OUR TAKE ON THE FINAL PRE-ELECTION JOBS REPORT: GOOD FOR THE CONSUMER; MIXED BAG FOR OBAMA

Takeaway: A demographically-based breakout of the US labor market paints a mixed message for Obama’s odds of reelection.

SUMMARY BULLETS:

  • Taking a careful and consistent eye to the OCT Jobs Report, we are of the view that the underlying trends in domestic labor market conditions sequentially improved in OCT.
  • From a headline perspective, these improvements bode well for President Obama’s reelection chances in pre-election polls. From a analytical perspective, however, there’s little to be gleaned from the OCT Jobs Report as it relates to the actual election next week. Still, the data did improve and is in-line with the general string of sequentially less-bad economic data (particularly on the PMI front) emanating from Europe, Asia and Latin America in the month of OCT.
  • Judging by deltas in unemployment across core demographics from the start of his presidency, President Obama may find it very difficult to galvanize his voter base in order to get them to support him at the polling booth(s) with the same fervor and magnitude as they did four years ago. That said, however, he just might be able to overcome this non-consensus view that he won’t have nearly as much support in 2012 as he experienced in 2008 from a voter turnout perspective – especially if he is able to adequately assign all of the blame for various post-crisis peaks in unemployment to George W. Bush and all of the credit for the trend of multi-year improvement to himself.
  • As it relates to what to do next from an investment perspective – irrespective of which candidate and Party controls the White House and Congress – please refer to our OCT 18 note titled: “COULD THE ELECTION, THE FISCAL CLIFF AND THE DEBT CEILING ALL BE BULLISH CATALYSTS FOR THE MARKET?” for more details.

With the general election only a few days away, it’s natural to analyze today’s Jobs Report with a political lens. In reality, however, we learned from our 10/24 conference call with Professor Ken Bickers of the University of Colorado, most voters tend to make up their minds on the economy well before the final hours of campaigning (likely in the late summer/early fall periods).

Bickers, whose model has accurately forecasted each Presidential election outcome going back to 1980, suggests Romney is likely to win the US Presidency with a demonstrable margin from an electoral college perspective.  We’ve posted a link to the presentation below if you have yet to view it:

http://www.youtube.com/watch?v=PzzFuAE14cY&feature=youtu.be&noredirect=1.

All that being said however, we are increasingly of the view that domestic economic data warrants unprecedented scrutiny, as headline figures for jobs and GDP have arguably become far more subject to government assumptions about seasonal adjustment effects, the rate(s) of inflation, etc. than in years past. Even taking a careful and consistent eye to the OCT Jobs Report, however, we are of the view that the underlying trends in domestic labor market conditions sequentially improved in OCT:

  • Subtracting out the now-infamous Birth-Death Adjustment from the NSA employment data, MoM Non-Farm Payrolls growth accelerated to +42k YoY form -67k in SEP;
  • Adjusting the unemployed headcount for a 10yr average Labor Force Participation Rate, the Unemployment Rate SA improved to 10.5% in OCT from 10.8% in SEP; and
  • Adjusting the unemployed headcount for the JAN ’09 Labor Force Participation Rate (Obama’s “starting position”), the Unemployment Rate SA improved to 10.9% from 11.1% in SEP. On this score, Obama has seen a +310bps rise in the seasonally-adjusted Unemployment Rate since he’s taken office.

OUR TAKE ON THE FINAL PRE-ELECTION JOBS REPORT: GOOD FOR THE CONSUMER; MIXED BAG FOR OBAMA - 1

 

OUR TAKE ON THE FINAL PRE-ELECTION JOBS REPORT: GOOD FOR THE CONSUMER; MIXED BAG FOR OBAMA - 2

 

OUR TAKE ON THE FINAL PRE-ELECTION JOBS REPORT: GOOD FOR THE CONSUMER; MIXED BAG FOR OBAMA - 3

From a headline perspective, these improvements bode well for President Obama’s reelection chances in pre-election polls. From a analytical perspective, however, there’s little to be gleaned from the OCT Jobs Report as it relates to the actual election next week. Still, the data did improve and is in-line with the general string of sequentially less-bad economic data (particularly on the PMI front) emanating from Europe, Asia and Latin America in the month of OCT.

HOW DOES OBAMA’S BASE FEEL ABOUT FOUR MORE YEARS?

Accepting the following headline figures at face value, we highlight a few critical deltas in President Obama’s key demographics ahead of Tuesday’s election:

  • The seasonally-adjusted unemployment rate among 18-19 year-olds has backed up +280bps since JAN ‘09 to 22.7%, though demonstrably improved from the 25.5% post-crisis peak recorded in MAY ’10;
  • The seasonally-adjusted unemployment rate among 20-24 year-olds has backed up +80bps since JAN ’09 to 13.2%, though demonstrably improved from the 17.1% post-crisis peak recorded in APR ’10;
  • The seasonally-adjusted unemployment rate among women has backed up +70bps since JAN ’09 to 7.7%, though demonstrably improved from the post-crisis peak of 9% recorded in NOV ’10;
  • The seasonally-adjusted unemployment rate among African-Americans has backed up +160bps since JAN ’09 to 14.3%, though demonstrably improved from the post-crisis peak of 16.7% recorded in AUG ’11; and
  • The seasonally-adjusted unemployment rate among Latinos is at 10% – the same level seen in JAN ’09 – though demonstrably improved from the post-crisis peak of 13.1% recorded in NOV ‘10.

Judging by the aforementioned deltas from the start of his presidency, President Obama may find it very difficult to galvanize his voter base in order to get them to support him at the polling booth(s) with the same fervor and magnitude as they did four years ago. That said, however, he just might be able to overcome this non-consensus view that he won’t have nearly as much support in 2012 as he experienced in 2008 from a voter turnout perspective – especially if he is able to adequately assign all of the blame for those post-crisis peaks to George W. Bush and all of the credit for the trend of multi-year improvement to himself.

This we know: Barack Obama is a great politician; the best bet is that he has been able to do so through careful messaging and populist politicking. As such, one can reasonably infer that his base will actually be energized enough to cut into what a minority in the analytical community believe is likely to be a clear advantage for the Republican Party with regards to Tuesday’s voter turnout. That could spell disaster for Mitt Romney’s chances of securing victory, as he likely needs Democrat voter participation to decline demonstrably from 2008 levels to have a reasonable expectation of victory.

As it relates to what to do next from an investment perspective – irrespective of which candidate and Party controls the White House and Congress – please refer to our OCT 18 note titled: “COULD THE ELECTION, THE FISCAL CLIFF AND THE DEBT CEILING ALL BE BULLISH CATALYSTS FOR THE MARKET?” for more details.

Have a great weekend and best of luck to our clients on the East Coast with their respective recovery efforts in the aftermath of Hurricane Sandy.

Darius Dale

Senior Analyst