The Election Year’s Magic Number

One theme that continues to appear in these postings is that decision makers, especially those in the business community, hate uncertainty. More information is always better than less, and that includes information about matters outside of your control. Not knowing is unsettling. And what could be more unsettling than not knowing who will be the leader of the free world next January?

President Barack Obama goes into November with history on his side. Since 1948, ten presidential elections have matched an incumbent against a challenger and the incumbent has won seven times (1948, 1956, 1964, 1972, 1984 and 2004). The raw numbers in this very simple analysis indicate that Obama stands a 70% chance of remaining in office.

Not so fast.

According to presidential historian Chris Dolan of Lebanon Valley College, the economy’s overall performance, as measured by Gross Domestic Product (GDP) in presidential election years, is the strongest indicator of electoral success for an incumbent president. Only once has an incumbent president lost when election-year economies grow in excess of 4%. So historically, a 4% growth rate appears to be the magic number to virtually lock-up re-election. The exception that proves the rule is the 1976 Ford vs. Carter election. Gerald Ford lost with the economy growing at a fairly brisk 5.3%, but exit polls showed that voters were angry about Watergate and Ford’s pardon of Richard Nixon.

The potential problem for the president is that according to estimates from the likes of Goldman Sachs, the Conference Board, and Kiplinger’s, GDP growth for 2012 is projected at 2% to 2.3%. That would be an improvement over last year’s anemic 1.7%, but well short of the pace needed to make the incumbent feel comfortable going into the fall.

Granted, other factors and situations – instability in the Middle East, a looming Supreme Court decision on health care, oil prices stabilizing at more than $100 a barrel – will factor into the election, too. Of course, all of this will be analyzed to death between now and November on the Sunday morning news shows, and outcomes in a handful of swing states (Florida, Ohio, and Pennsylvania) may decide the outcome. But if voters remain focused on economic issues, the Republican challenger will likely have an effective issue on which to campaign.

Polls, Other Races, and Show Me the Money

About seven months prior to the election, polls of “all adults” and “all voters” show President Obama with a slight lead over his probable challenger, former Massachusetts Governor Mitt Romney. Polls of “likely voters” also show the President leading, but by significantly smaller numbers that are within the margin of error.

But polling outlets also show weak numbers for the President’s handling of the economy, particularly in terms of energy policy. On the plus side for the President, he leads Romney among women voters by nearly 10%. But all polling numbers tend to be fluid this time of year, and many swing voters will not give the election serious thought until after Labor Day.

Besides the presidential election, all 435 seats in the U.S.House of Representatives, 33 of 100 U.S. Senate seats, and 13 governorships are up for grabs. Most analysts expect the Republicans to hold the House majority, and some predict them gaining 6 to 7 Senate seats, which would give them control of that chamber. That is due almost entirely to the fact that Republicans are defending only 10 Senate seats while Democrats are defending 23 seats. So if the President hangs on, look for a divided government through at least 2014.

So where does all this leave us? It’s too soon to really know, but if you believe that the feelings of people willing to put their own money on the line are reliable indicators of how certain events might shake-out, you’ll find this interesting. Action at Bovada, an offshore betting service that provides wagering on the outcomes of real world events, has Obama as a heavy 5/11 favorite to win re-election. A $100 wager would return $145. Gov. Romney is listed at 21/10, with a $100 bet returning $210.

Maybe the Bovada players are ignoring some of the economic data, or maybe they know something we don’t. It should make for an interesting campaign

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