This can’t be good news for Obama’s re-election prospects. In a bit of strategic timing designed to mitigate its impact, Goldman Sachs, that venerable bastion of Democrat support on Wall Street, decided to release a report late yesterday evening which can only be characterized as dismal. By dismal I mean not only for the overall U.S. economy, but more specifically for the Obama re-election campaign. Via James Pethokoukis at Reuters:
Last night in a new report, Democrat-friendly Goldman Sachs dropped an economic bomb on President Obama’s chances for reelection (bold is mine):
Following another week of weak economic data, we have cut our estimates for real GDP growth in the second and third quarter of 2011 to 1.5% and 2.5%, respectively, from 2% and 3.25%. Our forecasts for Q4 and 2012 are under review, but even excluding any further changes we now expect the unemployment rate to come down only modestly to 8¾% at the end of 2012.
The main reason for the downgrade is that the high-frequency information on overall economic activity has continued to fall substantially short of our expectations. … Some of this weakness is undoubtedly related to the disruptions to the supply chain—specifically in the auto sector—following the East Japan earthquake. By our estimates, this disruption has subtracted around ½ percentage point from second-quarter GDP growth. We expect this hit to reverse fully in the next couple of months, and this could add ½ point to third-quarter GDP growth. Moreover, some of the hit from higher energy costs is probably also temporary, as crude prices are down on net over the past three months. But the slowdown of recent months goes well beyond what can be explained with these temporary effects. … final demand growth has slowed to a pace that is typically only seen in recessions. .. Moreover, if the economy returns to recession—not our forecast, but clearly a possibility given the recent numbers …
Alarms bells must be ringing all over Obamaland today. Unemployment on Election Day about where it is right now? Sputtering — if not stalling — economic growth? To many Americans that would sound like the car is back in the ditch — if it was ever out. Maybe Goldman is wrong, but economists across Wall Street have been growing more bearish.
Remember, Obama touted his nearly trillion dollar Porkulus plan as necessary to keep unemployment below 8% and claimed passage would result in today’s rate being between 6 and 7%. Indeed his economic team claimed that without Porkulus, the rate would peak at 8.8%, which would have been notably better than the 10.2% rate it reached with Porkulus. 8.8%, I hasten to add, would be a significant improvement over what we have today. In any event, Goldman Sachs is now predicting an unemployment rate of close to 8.8% — 8.75% to be precise — on election day in 2012. No president in modern history has ever been re-elected with an unemployment rate over 7.2%. Given these numbers, how Obama will be able to defend his trillion dollar Porkulus during his campaign, regardless of how much money he raises, is difficult to fathom. My prediction: He’ll blame Bush.
The unemployment rate is not the only problematic aspect of Goldman’s report yesterday. Look for the already dreadful debt and deficit projections to get significantly worse than they already are, as Pethokoukis explains:
And recall that back in August of 2009, the White House — after having a half year to view the economy and its $800 billion stimulus response — made an astoundingly optimistic forecast. Starting in 2011, with Obamanomics fully in gear and the recession over, growth would take off. GDP would rise 4.3 percent in 2011, followed by … 4.3 percent growth in 2012 and 2013, too! And 2014? Another year of 4.0 percent growth. Off to the races, America.
Even in its forecast earlier this year, Team Obama said it was looking for 3.5 percent GDP growth in 2012, followed by 4.4 percent in 2013, 4.3 percent in 2014.
Translation: The rosy scenario upon which Obama bases, and continues to base, his deficit projections bears no resemblance to reality. This is nothing new, of course, as I discussed Obama’s penchant for basing budget forecasts on wildly optimistic economic scenarios in a post nearly two years ago. Once more realistic numbers get incorporated into official OMB and CBO forecasts, the current debt projections, horrific as they are, will look pretty damn good in comparison. Pethokoukis concludes by noting that there’s only one way for Obama to turn both the economy, and his re-election prospects, around:
When will the White House signal a change of economic direction? Will cutting tax rates and regulation ever make it on the agenda? That may be the only way Obama can win another term. And time is running short.
This will never happen, of course, as Obama’s far left ideology is simply too ingrained for him to trust free markets, even if he did understand them (he doesn’t). The answer, to both the unemployment and debt problems, is for policy makers to formulate and implement economic policy designed to grow the economy faster than the government as Reagan did, a point Governor Palin and others have repeated made. But this kind of common sense is a bridge too far for the current White House occupant. He’s in way over his head and has absolutely no idea what he’s doing, as his performance and increasingly surreal statements make clear. Unfortunately we’ll have to wait until 2013, at least, before we can look forward to any relief in the predictable economic malaise engendered by Obamanomics, as even Goldman Sachs is now acknowledging.
Update: (h/t T. J. P.) Ed Morrissey’s analysis here.