Analysis: Obama struggles with urgent task of fixing economy

WASHINGTON Wed Sep 1, 2010 2:57pm EDT

President Barack Obama delivers remarks at Xavier University in New Orleans, Louisiana, August 29, 2010. REUTERS/Jim Young

President Barack Obama delivers remarks at Xavier University in New Orleans, Louisiana, August 29, 2010.

Credit: Reuters/Jim Young

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WASHINGTON (Reuters) - President Barack Obama has declared fixing the U.S. economy his "central mission" but he has few tools to bring down nearly double-digit unemployment or jump-start the faltering recovery this year.

To get a quick fix, he would need a big initiative, but the president stands almost no chance of getting Congress to pass any substantial legislation in the few weeks left before the mid-term elections -- a stretch of time he calls the campaign "silly season."

Even if he could, it would be too late to help his Democratic party before Election Day on November 2.

"Between now and the time the Congress packs up for good to spend full-time on the fall campaign, the chances are between slim and none that any new significant economic legislation will pass," said William Galston, a former domestic policy adviser to President Bill Clinton and now a scholar at the Brookings Institution think-tank.

Obama returned on Sunday from a 10-day vacation in Martha's Vineyard to confront a batch of grim economic data and rising frustrations among Americans about the scarcity of jobs.

His week is jam-packed with foreign policy events, and he has scrambled to tell voters that the economy is his top concern.

Obama and his aides are discussing new measures they want to roll out quickly but the White House has suggested these will be "targeted" rather than a bold new package.

So that leaves the presidential bully pulpit as the main tool Obama must rely on to both convince voters and inspire confidence among businesses, consumers and investors.

But critics accuse him of fumbling that effort.

"This is a president who has lost control of his public message. It wanders unleashed from park to alley, stopping to sniff every cable news story along the way," Michael Gerson, a former speech writer for President George W. Bush, wrote in the Washington Post on Wednesday.

Gerson said that instead of focusing on "jobs, jobs, jobs," the White House has allowed the conversation to drift to subjects like immigration and a planned mosque near the site of the September 11 attacks in New York.

BIG JOBS REPORT LOOMS

Crucial for Obama will be Friday's monthly jobs report. Private economists forecast it will show that employers slashed 100,000 jobs from their payrolls and that the unemployment rate ticked higher to 9.6 percent in August from 9.5 percent in July.

That will be only the second-to-last employment report that the public will see before the congressional elections where Democrats worry about the potential for big losses to Republicans.

There is increased focus on what Obama might do after Federal Reserve Chairman Ben Bernanke's speech last week in Jackson Hole, Wyoming. Bernanke said the Fed was ready to take further steps to help the economy but also acknowledged the options are limited with interest rates already ultra-low.

Galston said the "post-November" period could provide a chance for Democrats and Republicans to discuss steps that might get bipartisan support such as a payroll tax holiday and some tax breaks for business hiring.

But for now, the two political parties are miles apart on what should be done to help the economy, with Republicans labeling the $814 billion stimulus package of 2009 a failure and lambasting his regulatory policies while some liberal economists are urging a new round of stimulus spending.

Departing White House economist Christina Romer provided fresh fodder for the debate with a speech on Wednesday in which she launched a vigorous defense of the stimulus. She also urged Washington to find the "will and the wisdom" to take further action to reduce the unemployment rate.

Romer, who is stepping down on Friday as chairwoman of the White House Council of Economic Advisers, stopped short of calling for a second round of stimulus.

But many analysts said the remarks suggested she was sympathetic to calls for aggressive fiscal measures to bring down the jobless rate.

"I notice she's saying this on the way out the door," said Bruce Buchanan, a political scientist at the University of Texas, Austin. "You're not hearing that strong language from the president or anybody else on the White House team but I think that captures how they feel. She's performing the service of making the point."

Romer said in her speech that concern about the U.S. budget deficit -- which is projected to hit $1.5 trillion this year -- should not be an "excuse for leaving unemployed workers to suffer."

But worries over the deficit are a constraint Obama will need to manage even after the elections.

"Among moderate and independent voters, deficit consciousness has surged over the past year and a half," Galston said. "There is no chance a second large stimulus is going to be enacted -- none."

Torsten Slok, senior U.S. economist at Deutsche Bank, said a big new stimulus plan is clearly "not on the table, so we have to wait for organic demand to pick up."

"There's no doubt, from an economic point of view, that more stimulus would be helpful," he said. "But politically and from the perspective of global investors, that's a tough sell."

(Additional reporting by Steven C. Johnson in New York; Writing by Caren Bohan; Editing by Eric Walsh)

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