APRIL 8, 2011: The unemployment rate fell to 8.8% from 8.9%. It has now plummeted a full percentage point in four months, a feat unmatched since early 1984 and a fact Mr Obama made sure to point out. No doubt he hopes it augurs for him what it did for Ronald Reagan in 1984. Like Mr Obama, Mr Reagan endured a savage recession early in his first term that crushed his approval ratings and cost his party seats in the mid-terms. But by 1984 job creation was on a roll and Mr Reagan romped to re-election.
A closer look at the data, however, illustrates why the economy is less of a tailwind for Mr Obama than it was for the Gipper. Unemployment is falling far faster than the health of the economy can explain. In the four months during which unemployment dropped a percentage point in 1983-84, non-farm payrolls leapt by 1.6m. In the last four months they have advanced a mere 630,000. The survey of households that yields the unemployment tally shows a much bigger gain in employment than the survey of employer payrolls, but still less than in 1984.
The reason is that unemployment is falling not just because of job creation but because the pool of people who want to work, the labour force, is not growing. Many people seem to have dropped out of the labour force for good, perhaps to retire, collect disability, or return to education. And their ranks could grow. Typically, those who have been unemployed the longest are the most likely to drop out of the job hunt. But Alan Krueger, an economist at Princeton, says that has changed.
Since 2007, he has found, the share of the long-term unemployed that drop out of the labour force has fallen steadily. He attributes this in part to the extension of unemployment benefit to 99 weeks from the normal 26 weeks. People who might have stopped looking for work keep at it to qualify for benefits. When the extended benefits expire at the end of this year, many of the long-term unemployed may simply drop out of the labour force. Meanwhile, those with the shortest spells of unemployment are now more likely to drop out, perhaps to return to college.
As for those lucky enough to have jobs, pay is stagnating. Hourly earnings rose just 1.7% in the year to March, a paltry raise that will soon be eaten up by the rising cost of petrol and grocery bills. This is ominous for Mr Obama, because it is the growth in overall income that seems most closely to predict a president’s re-election chances. That means pay as well as payrolls. His re-election is far from in the bag.