Bailing Out Obama: How the Economy Could Help the President Win the Election

The on-and-off recovery once again appears to be blinking on.

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President Barack Obama speaks before he awards the Medal of Freedom during a ceremony in the East Room of the White House in Washington, Tuesday, May 29, 2012. The Medal of Freedom is the nation's highest civilian honor. It's presented to individuals who have made especially meritorious contributions to the national interests of the United States, to world peace or to other significant endeavors.

By now, everybody knows what's wrong with the economy: There aren't enough jobs, Europe is stuck in a financial quagmire and Washington is playing chicken with tax and spending policies that affect millions of consumers and businesses.  But some things are going right, which is somewhat surprising given big economic risks that have been suppressing hiring and crimping spending.

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"We are hopeful that the economic soft patch that began in the second quarter is in the process of ending," Bob Doll, chief equity strategist for investment firm BlackRock, wrote to clients recently. "Our view is that the ongoing and halting recovery should be sustained, provided that we are able to avoid large negative shocks."

A modest uptick in the economy won't solve the jobs shortage or fix political problems in Washington or Europe. But it could mean the difference between a second term or retirement for President Barack Obama. With the presidential election between Obama and Republican challenger Mitt Romney likely to be a close call, any improvement that makes voters think things are getting better could be a decisive boost for Obama. Here are several factors that may now be working in his favor:

A housing turnaround. After six years of falling prices, it seems clear that the housing market has begun to recover. "Housing, once the Achilles' heel of the U.S. economy, is starting to look like a source of strength," writes economist Celia Chen of Moody's Analytics. "Housing is about to turn from being a drag on the broader economy to being a driver." Another big housing boom is unlikely, but stabilizing prices will bring out more buyers and ease the gloom of homeowners watching their biggest asset plunge in value.

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Stronger retail sales. The latest monthly figures showed a healthy 0.8 percent gain in July, the biggest jump in four months. Nobody expects a sudden spending binge, but a modest pickup in spending shows that consumers are feeling more confident about job security and the overall economy.

Robust industrial production. This, too, has picked up after slowing earlier in the year, a sign that producers anticipate healthy demand for goods over the next several months.

A pickup in hiring. The latest jobs report showed that employers added 163,000 jobs in July, better than economists expected. The July report could be a fluke, pushed artificially higher by temporary or seasonal factors, and it will take a few more upbeat reports to indicate that hiring is truly ramping up. But other data shows that there are more new job openings and fewer people filing for unemployment benefits, factors consistent with an improving job market.

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Low inflation. Gas prices are well below the troublesome $4-per-gallon threshold and higher food prices—one possible effect of the devastating droughts in the Midwest—haven't materialized yet. The latest figures show inflation is running at a very tame 1.4 percent.

A booming stock market. This may be the biggest summer surprise of all. The stock market has brushed off worries about a European recession, the "fiscal cliff" approaching at the end of the year—when Congress must make some momentous decisions on taxes and spending—and plenty of other problems to post a gain of about 8 percent over the last three months. And so far this year, stocks are up about 13 percent. Many analysts are scratching their heads, since economic fundamentals have supposedly been weak. Yet a rising stock market sometimes foretells better times ahead. "Stocks could be poised for further upside," says Doll.

Anybody looking for downward trends that could overpower these modest upticks won't have trouble finding them. Corporate profits are slowing, confidence remains close to recessionary levels, and business leaders worry that political turmoil could cause another recession. As Mitt Romney and his fellow Republicans will no doubt remind voters over the next 10 weeks, there are still 5 million fewer working Americans than there were at the start of 2008.

Obama, however, doesn't need a tidal wave of hiring to get re-elected. Most likely, he needs only enough of an improvement in the economy to convince voters that this time, the recovery might be real. Sooner or later, it has to be.

Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman