As has often been observed during the current campaign, no president in modern history has been reelected with the rate higher than 7.2 percent. So no wonder campaigns focus so much on joblessness. In 1948, President Harry Truman said, "It's a recession when your neighbor loses his job; it's a depression when you lose yours." To which Ronald Reagan famously added in 1980, "and recovery is when Jimmy Carter loses his." Both lines seemed to have worked.
But does the causal connection between the unemployment rate and a president's reelection withstand scrutiny? No, according to a recent study titled "Social Mood, Stock Market Performance and the U.S. Presidential Elections," authored by Robert Prechter and Deepak Goel of the Socionomics Institute, Wayne Parker of Emory University, and Matthew Lampert, a Ph.D. candidate at the University of Cambridge. After looking at all American presidential reelections, they say that the stock market is a better election predictor than the unemployment rate, regardless of whether voters themselves owned or traded stocks.
I asked Lampert to explain the findings, and, by e-mail, he, too, began by confirming that no president since Franklin Delano Roosevelt has been reelected "when the seasonally adjusted unemployment rate in November of the election year was greater than 7.2 percent."
Reagan was reelected in a landslide in 1984, when the November rate was exactly 7.2 percent. But President George H.W. Bush lost in 1992 when the November rate was slightly higher: 7.4 percent. Gerald Ford and Jimmy Carter lost with November jobless rates of 7.5 percent and 7.8 percent, respectively.
And, Lampert noted, it's not always the November number that counts.
"If you instead look at the unemployment rate in October of the election year, the numbers further challenge the assertion that an unemployment rate above 7.2 percent foreshadows doom for the incumbent," he stated. "The unemployment rate in October 1984 was 7.4 percent, and Reagan was reelected in a landslide. It was 7.3 percent - one-tenth of a percentage point better - in October 1992, and George H.W. Bush lost his reelection bid."
True, the unemployment rate rose during George H.W. Bush's term. It was 5.4 percent in January 1989 and 7.4 percent in November 1992. But the unemployment rate also rose during Dwight Eisenhower's first term - 2.9 percent in January 1953 vs. 4.3 percent in November 1956 - and he was reelected. The rate was essentially net flat during Reagan's first term. It was 7.5 percent when he took office in January 1981, rose to 10.8 percent in November and December 1982, and stood at 7.2 percent in November 1984.
After looking at other economic indicators, including rate of change in the stock market, GDP, and inflation in the years leading up to incumbent presidents' reelection bid, the study concluded that stock market performance was more predictive than the unemployment rate. This analysis went back as far as George Washington's successful reelection bid in 1792. (Naturally, the data are more complete in modern times. For example, national unemployment numbers go back only to 1940.)
According to Lampert, "The net percentage change in the stock market in the three years leading up to a presidential reelection historically accounts for just under one-third of the variation in the incumbent's popular vote margin. Real GDP accounts for a little less than one-quarter, and inflation and unemployment account for 3 percent and 1 percent, respectively."
Translation? Imagine the election outcome is a dollar. The change in the stock market accounts for 33 cents; the change in unemployment accounts for a penny.
What does all this mean for 2012?
"The stock market has risen more than 60 percent during President Obama's tenure, and that should bode well for his reelection chances," says Lampert. He did, however, caution that it's unclear whether we are in the beginning of a multi-decade advance, or moving upward within a larger decline.
If it's a bear market rally, Obama can seek solace in at least one historical case. Richard Nixon was reelected in a landslide near the top of a bear market rally in 1972.
Contact Michael Smerconish via www.smerconish.com. Read his columns at www.philly.com/smerconish.