3 Numbers That Will Determine the Next President

Here's how to tell who will win in November.

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The onslaught has begun.

For the next several months, anybody who flips on the TV or surfs the web will be inundated with edgy ads, pontificating pundits and verbose politicians telling them who is the best candidate for president. President Obama and his Democratic backers insist he's the one to bring fairness back to an economy that favors the one percent over the 99 percent. Mitt Romney, who seems poised to lock up the Republican nomination, says Obama is in over his head and only a business honcho like himself can bring prosperity back to the U.S.

[See how Romney and Obama differ on the economy.]

Voters who aren't sure will have months of polls, policy proposals, endorsements and perhaps even a few more debates to help them decide. But if you left the grid for most of 2012 and didn't plug yourself back in until the eve of the elections, you'd be able to predict the next president by consulting a few simple indicators. Here are three numbers that will indicate whether voters are feeling more comfortable when they head for the polls on Election Day, and are therefore likely to reelect Obama, or are feeling increasingly dissatisfied and are more likely to tap his Republican opponent.

The unemployment rate. If there's one single indicator that reflects the health of the overall economy and the mood of voters, this is it. When Obama took the oath of office in 2009, the recession was about a year old and the unemployment rate was 7.8 percent. It peaked at 10 percent later that year and has gradually fallen back to 8.5 percent. The downward trend is in Obama's favor, but most economists think it will still take years for the unemployment rate to fall back to the 5 percent range that's considered "full" employment in a good economy.

[See how Mitt Romney can defend his record on jobs.]

Threshold number: 9 percent. The unemployment rate could tick back up, as some out-of-work people who have given up looking for jobs start looking again, adding to the number of people technically counted as unemployed. If the economy continues to slowly improve, Obama can probably get reelected even if the unemployment rate inches close to 9 percent. Employers have added about 2.7 million jobs since the beginning of 2010, and if current trends continue, Obama will be able to say on the eve of the election that the economy created 5 million new jobs over the last three years. More importantly, voters will simply feel better, as they see fewer people around them struggling with unemployment and more people getting raises and promotions.

But if the unemployment rate exceeds 9 percent, it could mean another recession is brewing and companies are resorting to layoffs once again. That could happen if there's a financial meltdown in Europe or some other shock that unnerves CEOs and investors. Even if it's not Obama's fault, he'd likely get the blame for another surge in joblessness, and end up unemployed himself in 2013.

[See 3 holes in Obama's "fairness" doctrine.]

The price of gas. No single product affects the mood of consumers like gasoline. Foot-high price signs at every filling station are an inescapable reminder of what it costs to get around, and rising gas prices are usually associated with plunging confidence levels. Drivers seem to have gotten comfortable with prices hovering slightly above $3 per gallon, with polls showing that the majority of drivers are preparing for higher gas prices in the future. Still, any spike in the price of gas is like a tax hike that takes money out of consumers' pockets without giving them anything extra in return.

Threshold number: $3.75 per gallon. After nearly hitting an average price of $4 per gallon in 2011, gas prices have dropped back to about $3.40, which is low enough to keep them out of the headlines and off consumers' worry list. But gas prices are notoriously volatile, and one thing that could push them up is a confrontation with Iran over oil shipments in the Persian Gulf, which some analysts think could push prices as high as $5.

[See 3 scenarios for the economy on Election Day.]

On the other hand, Obama has a powerful trump card: the U.S. strategic petroleum reserve, which he could tap to put more oil on the market if there's a shortage, driving oil and gas prices down. Gas prices tend to stir up the media as they get close to $4, so $3.75 might be an equilibrium price that favors neither candidate. Obama would surely like to see them lower, while his Republican rival would probably benefit if they were higher.

The Dow Jones average. Most working- and middle-class families don't follow stock prices every day, but the stock market still has a powerful effect on the overall economy. Rising stock prices ease the financial pressure on companies and make it easier for them to hire and invest. Wealthy people who tend to own the majority of stocks feel better off when their investments are rising in value, spending more on everything from food to cars to music lessons for their kids. Many ordinary people also have pensions or retirement funds that benefit when stocks rise, making everybody feel a bit more bullish. A falling market, by contrast, brings confidence down with it, even among people who aren't losing money.

[See the 3 financial shocks of 2012.]

Threshold number: 12,832. That would be a modest five percent gain over the Dow's start at the beginning of 2012, the range of growth many Wall Street analysts expect to see this year—as long as no shocks occur. A five percent gain by Election Day certainly would not be a blistering performance, but it would reflect an economy that's slowly recovering, with the battered financial sector getting back to fundamentals. It might also reflect more "quantitative easing" by the Federal Reserve, which is meant to stoke the economy by encouraging people to take their money out of the mattress and invest it in risky securities like stocks.

If the Dow is much lower than that, it will probably signal that something's wrong. The markets are probably prepared for a few modest disruptions this year, such as a contained disruption involving Greece or a brief spurt in oil prices. But anything more severe could startle investors and begin a whole new cycle of gloom. Even if Obama didn't cause such a shock, pinched voters afflicted with frugality fatigue may vote him out anyway. Like many of his fellow Americans, Obama has little margin for error when it comes to holding on to his job this year.

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  • Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success , to be published in May. Follow him on Twitter: @rickjnewman