A roaring U.S. economy is strengthening President Barack Obama as he confronts a new Congress under Republican control.
A report that the gross domestic product grew at a 5 percent annual rate from July through September, its best performance in a decade, sent the Dow Jones Industrial Average past 18,000 for the first time. Consumers gained from stronger employment, higher pay and lower gasoline prices — countering criticism that Obama hasn’t done enough for middle-income Americans.
“There’s no way you can look at those numbers and say it’s not good news” for Obama and Democrats, said James Campbell, a political science professor at the University at Buffalo.
There won’t be another opportunity for Obama to build support in Congress through national elections. But better living standards for Americans can serve as a validation of the president’s policies and reinforce his ability to deflect Republican attacks and buoy the prospects of electing a Democratic successor in 2016.
Obama’s legacy also is at stake, and it’ll have more polish if he leaves office with a strong economy. Memories of a return to prosperity help fuel nostalgia for the presidencies of Bill Clinton, Ronald Reagan and Franklin Roosevelt.
“The biggest beneficiary is Hillary Clinton: She has to be able to go into 2016 with a strongly improved economy and perceptions of the economy,” said Amy Walter, national editor for the Cook Political Report. “She is the most responsible for the Obama economic legacy going forward.”
The impact on the next presidential election depends on the durability of an expansion that is already long by historical standards. For all the signs of strength at home, the U.S. faces potential headwinds as growth slows abroad.
The recovery has hit plenty of obstacles, including the European sovereign debt crisis, the U.S. flirtation with default, and across-the-board federal spending cuts.
Even so, right now “the economy is on fire,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.
Jason Furman, chairman of the White House Council of Economic Advisers, sought to connect Obama’s policies to the strengthening economy as he lauded Tuesday’s report as “a breakthrough year for the United States.”
Furman credited “the steps we took early on to rescue our economy and rebuild it on a new foundation.”
Consumers have grown more optimistic about their circumstances.
The Thomson Reuters/University of Michigan consumer sentiment index for December rose to 93.6 from 88.8 in November. Consumers end the year more optimistic than at any time since January 2007.
Consumers polled in the university’s monthly survey reported hearing more positive economic developments in December than at any other time since 1984, when Reagan campaigned for re-election on a “Morning in America” theme based on the economic rebound.
Almost two-thirds of those surveyed thought the economy had recently improved, and half expected the country to avoid another recession for at least the next five years, the most optimistic reading in a decade.
After five years of an economic expansion in which wage gains largely eluded workers, pay is beginning to pick up. Wages and salaries in the third quarter grew at a 3.7 percent annual rate.
Last month, disposable income, or the money left over after taxes, climbed 0.5 percent from the prior month after adjusting for inflation, the most since March. It was up 2.9 percent over the past 12 months.
With U.S. payrolls growing at the fastest rate since 1999, the number of unemployed workers available per job opening recently hit a critical tipping point: In October, only 1.86 jobless workers were available for each opening.
A 2-to-1 ratio is the threshold that typically leads to larger pay increases in about six months as employers compete for a dwindling talent pool, according to research by economists at UBS Securities LLC.
The jobless rate, at 5.8 percent in November, also is nearing the 5.2 percent to 5.5 percent level that Federal Reserve policy makers consider the equivalent to full employment. That’s putting further pressure on companies to bid up wages to attract workers.
Employers added 321,000 people to payrolls in November, raising the monthly average this year to 240,910. Last year, the economy gained an average 194,250 jobs per month.
At the same time, plunging prices at the gasoline pump are giving Americans extra cash to spend elsewhere. The average price of a gallon of regular gasoline fell to $2.38 as of Dec. 22, down 27 percent from the same day a year earlier and the lowest since May 2009, according to motoring group AAA.
© Copyright 2022 Bloomberg News. All rights reserved.