Politics and joblessness

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Nearly every indication suggests that the employment situation will get worse before it gets better, a prospect that should send shock waves throughout the Republican establishment. The last time the unemployment rate was higher on a presidential Election Day than it was a year earlier was 1992. And before that, it was 1980. In both cases, voters replaced the party occupying the White House.

Consider that the 1990-91 recession officially ended in March 1991, but the unemployment rate continued to rise, peaking at 7.8 percent in June 1992. Interestingly, even though the economy expanded more than 4 percent by the fourth quarter of 1992, compared to the fourth quarter of 1991, it evidently was the rising unemployment rate during the first half of 1992 that spelled doom for the White House in the "It's the economy, stupid" election.

The unemployment rate jumped from 4.7 percent in November to 5 percent in December. It was the first monthly jump of that magnitude since the 2001 recession. In the nonfarm payroll report, total jobs increased by only 18,000, the worst showing since the economy shed 42,000 payroll jobs in August 2003. More ominous was the fact that the private sector actually lost 13,000 payroll jobs last month. Only an increase of 31,000 government jobs tipped the payroll report into positive territory. Throughout 2007, 1.05 million private-sector jobs were created, reflecting a decline of 48 percent from 2006.

The unemployment rate is not the only key economic indicator that is moving in the wrong direction as voters begin to cast their votes. Inflation is rising, too. Whether measured by the consumer price index (CPI) or by the personal consumption expenditures price index, inflation has accelerated significantly over the latest 12 months compared to the preceding year. In the case of the CPI, 12-month inflation through November has reached 4.3 percent, which is more than twice the 2 percent rate that prevailed during the 12- month period ending in November 2006.

Given December's decline in private-sector payrolls and the "sharp drop" that occurred in the manufacturing sector last month (based on data compiled by the Institute for Supply Management), Morgan Stanley reported yesterday that "a recession may have begun in December." The investment bank re-iterated its projection of "a mild U.S. recession in the first half of 2008." On a fourth-quarter-over-fourth-quarter basis, Morgan Stanley expects inflation-adjusted growth of only 0.5 percent this year.

If you think people are grumpy today over President Bush's handling of the economy, wait until they feel the effects of an outright recession.