Mitt Romney has suggested that President Barack Obama has done a worse job managing the economy than Jimmy Carter. Investors disagree.
The Standard & Poor’s 500 Index of stock prices has surged 70 percent under Obama, more than three times the 19 percent increase seen during President Carter’s first 3-1/2 years in office starting in 1977. The corporate and government bond markets also have outperformed, with yields falling rather than rising. And the dollar has fared better, dropping about 4 percent against major currencies since Obama took over, compared with an almost 20 percent decline under Carter at a similar time in his tenure.
“We were seen as the weak sister back then,” as the U.S. struggled to free hostages seized by Iran from the American embassy in Tehran, said David Jones, the 74-year-old chief executive officer of DMJ Advisors in Denver, Colorado. “Now we’re the safe haven.”
Carter was swept out of office in 1980 by Ronald Reagan, who outpolled the Democrat by an almost 10 percentage-point margin. By comparing Obama to Carter, Romney is seeking to replicate Reagan’s success in painting his opponent as a failure on the economy. Obama leads Romney 48 percent to 44 percent in the Gallup tracking poll conducted June 27 through July 3.
At a campaign stop in Chantilly, Virginia on May 2, the presumptive Republican presidential nominee accused Obama of running an administration that’s been the most antithetical to small business since Carter’s.
“Who would guess that we’d look back on the Carter years as the good old days?” asked Romney, the former Massachusetts governor and private-equity executive.
They were anything but. The misery index, which combines the unemployment and inflation rates, stood at 20.3 percent as Americans went to the polls in November 1980, just below the post-World War II high of 22 set in June of that year.
Foreign confidence in the U.S. was so low that Carter had to issue U.S. government bonds denominated in German marks and Swiss francs in 1978 to entice investors overseas into buying them. The yield on the 10-year Treasury note stood at 12.4 percent at the end of 1980, up from 7.26 percent when Carter took office almost four years before.
“The ’70s were far worse than what we are experiencing now,” Laurence D. Fink, chairman and chief executive officer of BlackRock Inc., the world’s biggest asset manager, said on Bloomberg Television on July 3. “We had double-digit inflation and you had high unemployment,” Fink, 59, added.
While Obama has acknowledged that the economy still has its troubles, it is better off than it was back then. The misery index stands at 9.9 percent, less than half the level in the comparable 1980 period.
Although unemployment is higher -- 8.2 percent in May versus 7.5 percent in May 1980 -- inflation is much lower. Consumer prices are up 1.7 percent on a year-over-year basis, versus 14.4 percent in 1980. Payrolls rose 80,000 last month after a 77,000 increase in May, Labor Department figures showed today in Washington. Economists projected a 100,000 gain, according to the median estimate in a Bloomberg News survey. The unemployment rate held at 8.2 percent.
“It was a very difficult economy,” said Robert Stovall, the 86-year-old managing director for Wood Asset Management in Sarasota, Florida.
Now, foreign demand is helping to push the yield on the Treasury’s 10-year note down: It stood at 1.6 percent at 4:30 p.m. in New York yesterday after falling to a record 1.44 percent on June 1.
Net foreign purchases of Treasuries rose by $21 billion to a record $5.16 trillion in April, according to Treasury Department data released on June 15.
Low yields on Treasuries are pushing investors into riskier securities. The yield on junk-rated corporate bonds fell to 7.2 percent on July 3 from 23 percent in December 2008, just before Obama took office, according to the Barclays U.S. High Yield Index. Junk, or high-yield, securities are rated below Baa3 by Moody’s Investors Service and less than BBB-by Standard & Poor’s.
With the euro area racked by debt troubles, U.S. securities are the safest bet for investors -- the “cleanest dirty shirt” -- according to Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co. in Newport Beach, California.
“Don’t underweight Uncle Sam in a debt crisis,” Gross, 68, wrote in his monthly investment outlook on June 28. “Money seeking a safe haven will find it in America’s deep and liquid, almost Aaa rated, bond and equity markets.”
In dollar terms, U.S. stocks have been the best performing major equity market this year, with the S&P Index up almost 9 percent since the start of 2012.
Gross raised the proportion of U.S. government and Treasury debt in Pimco’s $261 billion Total Return Fund to 35 percent in May, the first increase since January and up from 31 percent of its holdings in April, according to data on the company’s website.
Federal Reserve policy has played a major role in the relative performance of the bond market in the Obama and Carter years. Seeking to curb rising inflation, then-Chairman Paul Volcker engineered a six percentage-point rise in the central bank’s target interest rate in 1980, to 20 percent.
“The economy got just clobbered,” said Daniel Fuss, vice chairman at Boston-based Loomis Sayles & Co., which manages about $172 billion.
In contrast, “this time, the Fed has been enormously accommodative,” the 78-year-old Fuss said.
Current Fed Chairman Ben S. Bernanke cut the target rate almost to zero in December 2008 and has kept it there since in order to revive the economy after the worst recession since the Great Depression.
The trend in the economy also looks more favorable under Obama than it did under Carter. Gross domestic product contracted at an annual rate of 7.9 percent in the second quarter of 1980 and 0.7 percent in the third quarter, after expanding an average 4.2 percent in the previous 3-1/4 years of Carter’s term.
The reverse has occurred under Obama. After shrinking 6.7 percent in the first quarter of 2009 as the president took office and a further 0.7 percent in the subsequent quarter, the economy has expanded by an average 2.4 percent, based on Commerce Department data.
“The difference is Carter inherited a pretty good situation and Obama inherited a terrible situation,” said Christopher Wlezien, a political science professor at Temple University in Philadelphia and co-author of the forthcoming book “The Timeline of Presidential Elections.”
‘Morning in America’
The economy’s performance this election year though doesn’t measure up to what it was when Reagan and Bill Clinton ran for second terms. In the first six months of 1984, GDP grew by an average 7.6 percent. Reagan, proclaiming that it was “morning in America,” won with 59 percent of the vote.
The economy expanded an average annual pace of almost 5 percent in the first half of 1996, helping Clinton to best former Kansas Republican Senator Bob Dole by 8.5 percentage points in the popular vote.
GDP expanded at a 1.9 percent rate in the first three months of this year and is projected to have grown 2.1 percent in quarter just ended on June 30, according to the median forecast of 70 economists surveyed by Bloomberg News from June 1 to June 5.
That performance is more in line with what happened in the first six months of 2004, when then President George W. Bush was running for re-election. The economy in the first half of that year rose at an average annual rate of just under 2.7 percent. Bush won a second term, with 50.7 percent of the vote to 48.3 percent for Massachusetts Democratic Senator John Kerry.
“If the economy during Carter’s re-election campaign represents one extreme and the economy during Reagan or Clinton’s re-election campaigns the other, then today’s economy is probably somewhat of a political gray area,” said Dan Schnur, a campaign adviser to Republican presidential candidate John McCain’s first bid for the White House in 2000.
“Voters are neither happy nor satisfied about the state of the economy, but they’re certainly not distraught,” said Schnur, now director of the Unruh Institute of Politics at the University of Southern California in Los Angeles. “That makes the economy an obstacle for Obama but not a disqualifier.”
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