WASHINGTON (Reuters) - Disappointing news on the economy — the issue most important to American voters — has cast a cloud over President Barack Obama’s hopes of re-election next year.
Polls show the president favored to win the election, with his approval ratings buoyed by foreign policy successes, most notably the killing of Osama bin Laden.
Obama has also benefited from the Republicans’ failure so far to assemble a field of strong presidential candidates, which has given him a head start on building his campaign apparatus and raising millions of dollars to pay for it.
But the economy remains the major downside for Obama’s 2012 prospects, with U.S. economic growth at a tepid 1.8 percent annual rate in the first three months of 2011.
Economists do not foresee a sharp decline in the country’s financial fortunes before the November 2012 election, but a double-dip in home prices, the impact of high gasoline prices on consumers and a slowdown in regional manufacturing are raising concerns the current soft patch could become protracted.
“The economy is always part and parcel of people’s general psyche as they walk into the voting booth,” said Neera Tanden, who was director of domestic policy for Obama’s 2008 campaign against Republican challenger John McCain.
Even an economic upturn, if it is not strong, might not be enough to boost the Democrats, said Tanden, who is now with the Center for American Progress in Washington.
“What’s tricky about a recovering economy — if we’re in a time when we don’t have particularly high growth rates but we have good trends — that’s more of a jump ball in terms of how people are approaching the option.”
Private-sector payroll growth slowed sharply in May, falling to the lowest level in eight months.
The closely watched monthly jobs report on Friday is likely to show unemployment declined slightly to 8.9 percent in May from 9.0 percent in April.
“If economic growth slows, stays slow and unemployment is between 8.5 and 9 percent next fall, I’d hate to be running for re-election under those circumstances,” said William Galston of the Brookings Institution in Washington.
“Candidates and campaigns make a difference. But the candidates and campaigns are structures erected on top of the fundamentals, and next year you don’t require a very clear crystal ball to see that the economic fundamentals will be the most important fundamentals,” he said.
Economists say the window of opportunity for Obama to significantly bring down the 9 percent unemployment rate is narrowing. They say the economy must grow by at least 3 percent each quarter to lower the jobless rate and the first quarter’s tepid growth rate is expected to be followed by a 2.5 percent to 3.3 percent rate in the second quarter.
Voters also are concerned about the U.S. budget deficit, which is expected to hit $1.4 trillion this year and stay in the trillion-dollar range for several years. Experts do not expect an agreement from Washington on a long-term, comprehensive debt-reduction strategy before November 2012.
Vice President Joe Biden is leading talks with lawmakers over spending cuts that could be folded into an agreement to raise the debt ceiling, the legal U.S. borrowing limit, before August 2, when Treasury Secretary Tim Geithner has said the government will run out of money to pay its bills.
“The overarching theme is going to be the economy and probably linked to that is deficit reduction,” Ipsos pollster Cliff Young said.
However, the deficit issue could cut both ways.
“The Republicans have a strong brand on budget cutting, and voters are worried that it is going to go too far,” said Ryan McConaghy, director of the economic program at the centrist Third Way think tank. “They are concerned the Republicans will slash and burn the budget, but they are not quite sold that Democrats will go far enough.”
A Democrat won what had been a Republican-held seat in the U.S. House of Representatives in a special election in New York State last week, largely due to voter concerns about a Republican plan to scale back the government’s Medicare health insurance for the elderly.
Republicans in Congress who swept to power in 2010 on promises that they would steer the economy better than Obama and other Democrats have done since he took office in 2009 could also suffer if the financial picture is weak.
“The challenge for Republicans is that people believe that they actually control part of the government now, and they no longer have the luxury of the free ride that they had in the first two years,” Tanden said.
However, voters typically hold the president more accountable for the health of the economy, which means that Obama will face more pressure to show that his policies can boost employment. And Obama’s fortunes will set the tone for his party.
Additional reporting by Lucia Mutikani; Editing by Alistair Bell and Paul Simao