The economy

The economy

Upswing

Many states key to November’s election are doing better; whether the president can exploit that is another matter

ON MAY 24th Barack Obama launched a blistering attack on Mitt Romney’s business background from the state fairgrounds in Iowa. A week later Mr Romney returned the favour from a furniture warehouse in Las Vegas, Nevada. The choice of venues was hardly random. Both are in “swing” states that will help determine the outcome of this November’s election. With the economy at the top of voters’ concerns, how the recovery is seen to be faring in such states could have an outsize influence on the result.


Superficially, Iowa and Nevada are opposites. Iowa’s big manufacturing sector lost one in eight of its jobs between 2007 and 2010, yet the state had no housing bubble and its unemployment rate remains among the lowest in the country. Tourism-dependent Nevada was the state worst hit by the housing bust and still struggles under the country’s highest jobless rate.

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But together with 11 other states usually considered electoral toss-ups (see table), they are, by some metrics, doing better than the nation is. The 13 states’ weighted unemployment rate in April was 7.7%, according to an analysis that Alexander Miron of Moody’s Analytics conducted on behalf of The Economist. That is slightly less than the national rate of 8.1%. More important has been the pace of improvement. Throughout 2009 and 2010, the swing states’ unemployment rate was higher than the national average.
Most swing states fall into two categories. The first comprises five Midwestern states plus nearby Pennsylvania with relatively large manufacturing bases. Politically, Ohio is the most important because of its large endowment of electoral-college votes and its history of picking presidential winners. Its economic performance has typified the Midwest. Since 2010 its unemployment rate has fallen from well above to comfortably below the national average. Tim Dunne, an economist with the Federal Reserve Bank of Cleveland, says Ohio’s recession was worse than the country’s and so had more room for catching up. Manufacturing is growing thanks to the recovering car industry, but even so the sector has recouped only a quarter of its 20% plunge in employment between 2007 and early 2010.
The impressive fall in unemployment in many swing states is a bit misleading: their payroll growth has been slower than in the country as a whole. The reason is that the pool of available workers is stagnant or shrinking, which means fewer people are counted as unemployed. Nationwide, labour-force growth has been held back as workers give up the job hunt, go back to school, retire or go on disability. In the Midwest, these trends have been compounded by slower population growth. Mr Dunne says Ohio has long suffered from a dearth of skilled workers moving into the state. It barely has more people than it did four years ago and its labour force has shrunk. Low population growth hampers service industries that cater to local residents. The trend is even more striking in Michigan, which owes some of its dramatic fall in unemployment to a shrinking population and a labour force that fell 8% between 2006 and 2011.
The second category comprises three of the four so-called sand states: Florida, Arizona and Nevada (the fourth, California, is solidly Democratic). All experienced dramatic housing booms and busts, and now labour under higher unemployment than the rest of the country. Unemployment has fallen rapidly in all three, though as in the Midwest that is partly because of weak labour-force growth, a turnaround from the boom years when migrants from other states flooded in.
Still, their economies may be poised to do better. The housing markets in both Arizona and Florida have bottomed out as cash-rich investors and foreigners snap up properties that are bargains compared with equivalent rental ones. Phoenix and Miami recorded the strongest and fourth-strongest increases in home prices in the year to March, according to one leading index. Prices in Las Vegas were still lower than they had been a year earlier but have stabilised in the past few months.
How much any of this will matter on November 6th is unclear. John Sides, a political scientist at George Washington University, argues there is little or no empirical link between a state’s economic conditions and its presidential voting. National economic conditions are far more important, probably because voters base their opinions on the national media, or national indicators such as the stockmarket. Mr Sides’s findings may also reflect a phenomenon identified by Moody’s Analytics: over time, states’ economic performance has converged, and the variance between their growth rates now matches the lowest in 70 years.
To the extent that local conditions do make a difference, it would be a stretch to assign either credit or blame to Mr Obama’s policies. The auto bail-out had a huge impact in Michigan, and may explain why it is solidly in Mr Obama’s camp despite Mr Romney’s personal connections to the state where he was born. But for the rest, the recovery in manufacturing and housing in swing states owes more to the rhythms of the business cycle and global conditions, or to broad-based federal stimulus and easy monetary policy. Moreover, if Mr Obama tries to take credit for good news in swing states such as Ohio, Virginia and Florida, he will have to share it with incumbent Republican governors equally intent on reaping the political benefit.