Obama's nightmare economic re-election scenario unfolding?

In order to win re-election, Barack Obama really needs an economic renaissance.  As James Pethokoukis reports for Reuters, it’s looking increasingly clear that he’s not going to get it.  The big analysts are now banking on almost zero growth and even higher unemployment than we have now for next year’s presidential election:

The White House’s worst-case scenario for the economy on Election Day next year has become Wall Street’s baseline scenario. After looking at a string of weak economic reports and Europe’s growing fear of debt meltdown and contagion, JPMorgan – led by Obama pal Jamie Dimon – has just come out with a politically poisonous forecast.

The megabank now thinks the economy won’t grow much faster over the next 12 months than it did during the first half of this year — and that’s assuming Europe doesn’t go all pear shaped. It sees GDP growth at just 1.5 percent this year, 1.3 percent next year with unemployment at … 9.5 percent heading into the final days of the election season. “The risks of recession are clearly elevated,” the bank said. Here’s its reasoning:

Consumer sentiment has tumbled and household wealth has deteriorated. Survey measures of capital spending intentions have moved lower and the housing market shows little sign of lifting. Small businesses, retailers, builders and manufacturers all report a weaker business environment. Global growth has disappointed and foreign growth forecasts have been taken lower. In response we are lowering our projection for growth, particularly in the quarters around the turn of the year.

Team Obama had better permanently shelve any plans of running a “Morning in America”campaign. In fact, if a) the economic forecasts of Morgan Stanley, JPMorgan and Goldman Sachs are accurate, and b) voters behave as they usually do during bad economic times, then c) Barack Obama will be a one-term president. No president in the modern era has been reelected with the unemployment rate higher than 7.4 percent, much less two percentage points higher.

It’s worth noting that we’d have to actually improve to get to 1.5% GDP growth in 2011.  The advance Q2 number was 1.3%, and the Q1 figure got downgraded to 0.4%.  So far, there have been no indications of improvement by the middle of Q3, and the Philly Fed economic index drop suggests a weaker GDP number for this quarter.  If we stay in the mid-1% range for an extended period of time, we will start losing net jobs again, which will feed into the pressure on Obama.

Basically, we’re looking at a replay of 1980’s election, and perhaps even the 1976 election as well, although that had a lot of other baggage than just economic malaise, such as Gerald Ford’s pardon of Richard Nixon and general anger at Republicans for Watergate.  George H. W. Bush lost his re-election bid after the economy tipped over into a mild recession in 1990-1 and had already begun recovering by 1992; Clinton ran on the economy and managed to win it in a three-way race.  These kind of economic numbers suggest a landslide defeat for Obama.  Even if they turn out to be a little on the pessimistic side, Obama won’t get much support for, say, 2.2% growth and 8.7% unemployment by next summer.

Can Obama make the election next year about anything else but the economy?  The only issue that voters care about at even close to the same level is the federal budget deficit and the debt, where Obama wants to raise taxes and leave the drivers of debt and deficits – entitlement programs – largely alone.  Unless Obama manages to score a big victory on national security, this next election is looking pretty grim.  And Obama can ask Bush 41 about how much a big victory over Saddam Hussein in 1991 helped him in the 1992 election.