The news that the U.S. economy added a whopping 271,000 jobs in October, driving the unemployment rate to 5 percent — a level last seen in 2008 — is good news for thousands of newly employed Americans, good news for President Obama’s approval ratings and good news for retirees and financial services firms, which have been waiting impatiently for the Federal Reserve to begin raising interest rates.
There is likely nobody happier, though, than the frontrunner for the Democratic presidential nomination, Hillary Clinton.
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Despite a plethora of polling about candidates’ favorability ratings, trustworthiness and how much people would like to have a beer with them, there is a strong belief among many election forecasters that the most important factor in presidential elections — absent utterly disqualifying mistakes by one of the candidates — is the status of the U.S. economy.
Specifically, the thinking is that the economic trends that are in operation at the time of the election have a very significant impact on the public perception of the party holding the White House. An economy on the downslope is bad news for the incumbent party, while an economy that’s improving — even from a very low level — is good news.
A month ago, when September jobs numbers disappointed by coming in lower than an already weak-looking August, there was widespread speculation that the U.S. economy might be sliding into a period of relative stagnation.
The October numbers make that scenario look unlikely, according to economists like Stuart Hoffman of PNC Bank. “This very strong October jobs report proved that the weaker job growth in August and September was NOT a significant slowing in the solid underlying trend of employment growth,” he wrote.
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The political implications of a sputtering economy headed into a general election year were not good for Clinton, who, assuming she earns the Democratic nomination over Vermont Sen. Bernie Sanders, would inevitably be associated with the performance of the Obama administration.
In a note released Friday morning, the Bank of America Merrill Lynch U.S. economics team suggested that even assuming a conservative job growth rate of 150,000 per month, the unemployment rate will likely drop to 4.5 percent by the end of 2016.
Better still for Clinton, as more American find work, wages are continuing to go up. Average hourly wages went up nearly half a percent between September and October, and are now growing at a solid, if not spectacular, 2.5 percent per year.
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“While we must be careful not to overreact to one report on wages, we are hopeful this is the beginning of an upward trend,” the Merrill Lynch economists wrote.
The election, still a year away, can be affected by any number of things between now and November 2016, and a strong economy is no guarantee that another Democrat, be it Clinton or someone else, will follow Obama into the White House. However, a weak economy would make it highly unlikely.