Convention speeches can be rousing, but what will really sway voters in November is the state of the economy. And indications are, they'll be feeling pretty sour.
The latest consumer confidence survey from the Conference Board shows that Americans are, once again, growing pessimistic about their future prospects. The index rose from last fall until February, as it seemed the economy was shaking off last summer's debt-ceiling fiasco and perhaps entering a more robust recovery phase. But confidence has been falling ever since, and it's now close to recessionary levels. "All is not well," economist Chris Christopher of IHS Global Insight wrote to clients after the latest numbers came out. "This is a bad report."
Economic reports come out all the time, of course, and no single one can foretell what will happen with the economy or how the November elections will go. But consumer confidence numbers reflect a lot of other things going on in the economy involving jobs, incomes, gas prices, and the stock market. What consumers seem to be saying is that President Obama's re-election bid is in trouble. The most worrisome aspect from Obama's perspective involves expectations for the next six months. More Americans expect business conditions to worsen and fewer expect conditions to improve. The job outlook has dimmed. More people expect inflation to go up and the stock market to go down.
This is precisely what Republicans want voters to think, at least until the elections are over. One obvious worry is the "fiscal cliff" looming at the end of the year, when roughly $700 billion of tax hikes and spending cuts will hit the economy unless Congress does something to forestall them. Congress will probably come up with some sort of deal that prevents the worst from happening—but not until the last second, and certainly not before Election Day. Meanwhile, business leaders are becoming more concerned about the standoff, press headlines warn of impending disaster, and consumers, no doubt, absorb some of the gloom.
Unless something unforeseen happens, the economy on Election Day will look and feel much like it does now, with little to get excited about, a lot of uncertainty, and a deep sense of stagnation. A few things could push confidence up or down. One is any new monetary stimulus by the Federal Reserve, which many economists expect to happen at some point in September. Expectations of Fed action are so strong, in fact, that if it occurs, stock markets may not move that much, because Wall Street has already factored more stimulus into its pricing models. But if the Fed surprises investors by doing nothing, stocks could fall.
There will also be three more official jobs reports by Election Day, which will help voters figure out if hiring is picking up or continuing at weak levels. Employers added more jobs than expected in July, but the average for the last three months has been only about 105,000 new jobs per month. If the economy were growing at a healthy pace, it would be twice that or more. Weak job growth helps explain why consumers are bummed out.
Moody's Analytics predicts job gains of about 120,000 per month for the rest of the year, which is better than nothing but hardly a cause for excitement. If that forecast pans out, consumer confidence might stay roughly where it is. If job creation is worse leading up to Election Day, however, dour headlines will amplify the disappointment and Obama's re-election odds will fade further.
There's at least one thing that could make consumers feel better. Gas prices have been rising lately, which usually puts consumers in a lousy mood whether they realize it or not. That may be one reason consumers expect inflation to average nearly 6 percent. But inflation has been much lower than that for a long time, and gas prices seem most likely to ease as summer ends and seasonal factors that usually push up pump prices recede. So the direction of pump prices in the fall could be a happy surprise for consumers and a modest boost for Obama. He'll need it, because a lot of other forces will be working against him.
Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.