Are Economic Indicators Foreshadowing an Obama Win?

US News

There is now a firm consensus among media analysts that Republican presidential candidate Mitt Romney soundly defeated Democratic President Barack Obama in Wednesday's debate, outmaneuvering the president on many issues and often putting Obama on the defensive. But will Romney's victory matter?

Three debates remain--one between the vice presidential candidates and two more presidential debates--and there is little agreement on whether these contests have a significant impact on voters.

[See 4 Steps to Lock Down Your Portfolio for the Election.]

But most pollsters acknowledge that the economy represents the most important issue in this election. In recent months, it was widely thought that the sluggish recovery of the U.S. economy would benefit Romney.

However, with only a handful of weeks left until Election Day, the economy is showing signs of life. According to experts interviewed by U.S. News, after nearly four years into Obama's presidency, several signs indicate that the state of the economy may now work in the president's favor.

"What we're seeing right now, because the economic indicators are slowly improving, is a little bit of confidence coming back to decision-makers, including businesses and consumers," says Kimberly Amadeo, author of Beyond the Great Recession: What Happened and How to Prosper.

Signs of life. In recent weeks, a number of indicators signal that the economy is showing signs of stabilized growth--the most visible of which is steady improvement in the stock market.

The S&P 500 dipped below 13,000 in July, setting off some panic on Wall Street. But since then, the index has risen steadily. Barring any catastrophic economic news, this rally is likely to continue through October.

The Dow Jones Industrial Average has experienced a similar uptick. Since bottoming out near 12,000 in early June, the Dow has consistently been up. Currently, it's hovering around 13,500.

In addition, a recent report from the Center for Audit Quality found that 65 percent of investors now believe the economy will improve--an increase of 4 percent from 2011. In September, Morgan Stanley's research note said the firm's business conditions index rose 18 points that month--perhaps an indication of growing faith in the economy. And a recent JPMorgan note said nearly 70 percent of people are optimistic about the direction of the economy.

[See Obama or Romney: Who's Better for Your Portfolio?]

Positive news has also emerged on the job front. The Bureau of Labor Statistics recently revised the number of jobs added as of March to 386,000, bringing the number of jobs added under the Obama administration to a net-positive for his term.

Of the Conference Board's five leading economic indicators, three are trending upward: the consumer confidence index, the employment trends index, and the Help Wanted Online index. The other two--the CEO confidence index and the leading economic index--are down only slightly.

Finally, Intrade, an online trading website that predicts political and economic outcomes, gives Obama a 67 percent chance of winning, even after his lackluster debate performance. Intrade, which is closely watched by traders and pollsters, has correctly predicted the last two presidential elections.

Growing confidence in election results. According to Amadeo, all of this is a reflection of a growing confidence that Obama will win the election. As business leaders grow more certain that Obama will stay in the White House, many of them are starting to plan for the next four years with his policies in place. "My point is not that Obama is good for the economy and Romney isn't," she says. "The main thing holding back the economy right now is uncertainty."

"Confidence is growing that Obamacare will stand, and that we'll have a better picture of how we're going to handle the national debt," adds Amadeo. "Now that we are more confident, businesses and consumers are starting to have a better feeling about what way the economy and decision-makers are going."

Brian Domitrovic, a professor of economic history at Sam Houston State University in Texas, says recent actions by the Federal Reserve are also buoying the stock market and improving the president's chances. Fed chairman Ben Bernanke recently announced another round of quantitative easing, a process that allows the central bank to inject more cash into the economy when other stimulus fails. This also keeps mortgage rates at historic lows, granting more people access to the housing market.

[See Is Fed Money Fake? Investors Make It Real.]

"What we have with quantitative easing is $40 billion per month that is going to buy mortgages," Domitrovic says. "Any time you free up that amount of cash, it gets invested in a variety of asset classes," strengthening the stock market.

The Federal Reserve has completed two rounds of quantitative easing, and Bernanke hinted this week that another round could take place before the election. Domitrovic says that would further boost the economy and improve Obama's election chances.

However, the move could also be political, according to Domitrovic. "Mitt Romney has said we will not reappoint Bernanke," he says.

So if Romney wins, Bernanke will be looking for a new job.



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