Bloomberg News

Obama Economy Mission Unfinished Before His State of Union

February 12, 2013

President Barack Obama first spoke before a joint session of Congress during the depths of a recession. Four years later, much of the mission he laid out remains unaccomplished.

When Obama delivers his State of the Union address tonight, he’ll still be confronting the central challenge of his presidency: The unemployment rate is only a few tenths of a percentage point lower than it was in February 2009, middle- income Americans are earning less, and the economy stalled in the last three months of 2012.

With a second-term agenda that includes the politically contentious issues of gun control, immigration and climate change, Obama’s ability to rally the public behind him is tied to the performance of the economy.

“A lot of what the president will be doing is defining himself as he’s looking for long-term support,” said George Edwards, author of “The Strategic President: Persuasion and Opportunity in Presidential Leadership.” “He wants to see himself defined in terms of how he’s doing on the economy and helping the middle class.”

Maintaining, cultivating and leveraging public support will be crucial for Obama to shape his legacy while dealing with a divided Congress. As he has over the past month, he will employ a campaign strategy to pressure Republican lawmakers as a follow-up to his speech, with stops this week in Asheville, North Carolina, Decatur, Georgia, and his hometown of Chicago.

Political Approval

Since the start of the year, Obama has maintained an average approval rating of 52 percent in Gallup’s daily tracking poll, compared with 14 percent approval for Congress in a separate Gallup survey.

His ability to use that advantage will be tested within weeks. A March 1 deadline for $1.2 trillion in automatic spending cuts to kick in creates a compressed timetable for a showdown with Republicans over economic priorities.

That debate will occur amid fresh concerns about the strength of the U.S. recovery. After growing at a 3.1 percent annual rate in the third quarter, the world’s largest economy unexpectedly shrank in the final three months of the year, registering a 0.1 percent decline.

The median estimate of economists surveyed by Bloomberg is for growth of just 2 percent this year. Real average weekly earnings showed no gain for the year ended in December, and the unemployment rate in January rose to 7.9 percent from 7.8 percent the month before.

Spending, Taxes

When Obama gave his first State of the Union address on Feb. 24, 2009, he told Americans that the country would rebuild, recover and “emerge stronger than before” from the worst recession in seven decades. He defended his administration’s initial efforts to stabilize the financial system and the economy while looking ahead to the fight over health care.

Today, he isn’t facing the global financial crisis that he did in 2009. Still, his basic task is the same now as then: Persuading lawmakers and voters that his plan to revive growth will succeed.

Obama tonight will outline the “ingredients you need to make the U.S. a magnet for job creation,” National Economic Council Director Gene Sperling said in a Bloomberg Television interview. “That will be a combination of having a balanced approach to deficit reduction that gives investors and job creators more confidence, but it will also stress the importance of manufacturing for job growth and innovation, our energy future and the importance of housing and skills.”

Apple’s Cook

As Obama discusses the importance of manufacturing and boosting U.S. competitiveness on a global scale, Apple Inc. (APPL:US) Chief Executive Officer Tim Cook will be attending the speech as a guest of first lady Michelle Obama.

The president will offer proposals for spending on infrastructure, clean energy and education, according to an administration official briefed on the speech. His argument, directed at congressional Republicans amid a battle over fiscal policy, is that fostering economic growth is the best strategy to narrow a federal budget gap that has exceeded $1 trillion in each of the last four years.

“He understands both the short and long-term stakes center on the economy,” said Democratic pollster Stan Greenberg. “He still needs growth.”

Pivotal Battle

Whether the White House and Congress can avoid the automatic spending cuts at the end of the month -- the result of a 2011 budget deal -- may have the greatest influence on the strength of the economy, said Alec Phillips, a Washington-based political analyst and economist for Goldman Sachs Group Inc.

“In terms of the effect that federal policy can have on the economy this year, the most important thing is the planned spending cuts under the sequester and whether Congress can at least soften those cuts if they do occur,” Phillips said.

On the eve of tonight’s prime-time address, Republicans were anticipating Obama offering more confrontation than compromise, the same way they viewed the president’s second inaugural address last month, when he delivered an unapologetic defense of the government’s role in promoting equality.

The president regards the inaugural address and the State of the Union speech as “two acts in the same play,” White House press secretary Jay Carney said yesterday.

Protecting Medicare

The lines have been set for weeks. Obama has called on Congress to pass a short-term measure of spending reductions and revenue increases -- including closing loopholes used by the wealthiest taxpayers -- to delay the across-the-board spending cuts. While Obama has signaled flexibility on reducing growth in Social Security and Medicare, Carney yesterday said the president has ruled out raising the age for Medicare eligibility, a move that has been pushed by some Republicans.

Republicans have said they won’t consider raising more revenue, pointing to the $650 billion tax increase on top earners that Obama won as part of the last budget deal enacted on Jan. 2.

“I strongly suspect that instead of bipartisan action, the White House will subject us to yet another campaign blitz,” Senate Republican leader Mitch McConnell of Kentucky said on the Senate floor. “There’s pretty broad agreement the president spent most of his first term avoiding the issues Americans’ cared about most. What I’m suggesting is that he not do the same thing this time around.”

While administration officials have said the speech will focus primarily on economic matters, Obama will devote a portion to his plans to drawdown the war in Afghanistan.

He’ll announce that about 34,000 U.S. troops will be home from Afghanistan by this time next year, cutting the military presence there by about half. The number of military personnel will continue to be reduced through the end of 2014 as Afghans take full responsibility for their security and the U.S. role in the war comes to an end, administration official said today.

To contact the reporter on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net;

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net


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