Almost daily, Americans are bombarded with polls suggesting major dissatisfaction with the direction of the economy. Yet the presidential futures markets and the most recent polls continue to signal the president has a significant lead over Republican challenger Mitt Romney.
This morning, Intrade, which bills itself as the world’s leading prediction market, shows Obama with a 60 percent probability of winning the race, up from 46 percent last October. The University of Iowa’s presidential election market shows a similar 60-40 spread for Obama on a winner-take-all basis, and a 53-47 spread on a vote share basis, which is the same as the president’s vote total in 2008.
Yet dissatisfaction with the state of the economy remains high. The most recent Washington Post-ABC poll from early March showed 59 percent of voters casting a negative vote on the president’s handling of economic matters. A more recent New York Times-CBS poll from early April showed voters disapproved the president’s handling of the economy by a 48-44 margin.
Clearly, widespread dissatisfaction with an unemployment rate stuck above 8 percent remains high. Yet that hasn’t translated into a major rejection of the president’s performance in office.
While the most recent Post poll showed that 50 percent of voters disapproved the president’s handling of his job compared to 46 percent who approved, the prior month 50 percent had approved and 46 disapproved of his leadership. Both poll results were within the poll’s margin of error.
The Times poll was more definitive when voters were asked the very same question. Forty-eight percent of voters approved the president’s handling of the presidency compared to 42 percent who disapproved. That was a sharp turnaround from the prior month when disapprovers outvoted approvers 47 percent to 41 percent.
Some polls are starting to echo the popular mood that things are getting better. The Wall Street Journal-NBC poll out this morning showed Obama with a six point lead over Romney in a head-to-head tally. While slightly over half of those polled said the U.S. is on the wrong track, that was down sharply from last October’s 74 percent negative response when asked this proxy question for the state of the economy.
The trend appears clear. If the economy continues to improve between now and November, the crowd at the betting window is right: the president will win handsomely. But if job creation falters, unemployment remains stuck at 8.3 percent or higher and consumers put away their credit cards, the race will tighten appreciably with Romney having a solid shot at winning.
That’s why the past few weeks’ stock market performance has been so interesting. It’s important to remember that jobs and unemployment are lagging indicators. While voters respond to those high-profile numbers, they basically tell economists what happened in the economy over the past three months. Businesses get new sales and then they add new workers, not the other way around.
But the stock market is a leading indicator. It can tell economists where the economy is headed over the next three months. And lately, it’s been shouting that we’re headed for another summer slowdown.
But unlike unemployment, which is a fairly accurate indicator of where we’ve been, the stock market is notoriously fickle and often wrong. A large amount of ground lost in a week can be made up and surpassed over three or six months.
Last year, the triple shock of the Japanese tsunami, skyrocketing oil prices and the European debt crisis led to a pronounced slowdown in economic activity. Right now, oil prices are starting to recede from another spike and the European debt situation, while threatening, still appears manageable. Good news from this weekend’s International Monetary Fund meeting in Washington should solidify that perception.
But do not discount the possibility that a major surprise could throw the economy for a loop. It’s been awful dry this spring. What might a drought do to food prices? Is Mother Nature about to throw the economy – and the president – another sinker?