The price of oil is on the rise — above $100 a barrel in overnight markets — while President Obama’s approval ratings may be on the decline.
So far any change in the president’s standing has been modest, and it would be premature to conclude that higher gas prices are the cause. But if they continue to rise, what sort of threat might they pose to his re-election prospects?
There are two things we need to consider. First are the direct effects: do higher gas prices, by themselves, tend to significantly damage the president’s standing? Then there are the indirect effects: the way that higher fuel prices could ricochet onto the economic recovery, and impact variables like G.D.P. growth and inflation that have been shown to correlate with a president’s re-election chances.
Ultimately, Nate said there’s not a lot of evidence that oil prices are all that important for the President's re-election chances.
But what about the greater economy? For that, we turn to the Bonddad:
I believe the evidence is clear: the U.S. economy is in the middle of a recovery. We've had six straight quarters of GDP growth, a solid manufacturing sector and a recovering service sector. Other countries are growing, which is giving strong support to U.S. exports. PCEs are now higher on an inflation adjusted basis than pre-recession levels. The two laggards are employment (which is typical as it is a lagging indicator) and housing (which will be a problem area for the next year at least). So, will the current spike in oil prices derail the recovery?
I don't believe we are there yet for several reasons. First, the events in the oil market are only a week old. (although they seem to have gone on far longer). Second, I think the overall economic recovery now has legs -- the recovery is no longer fueled by government spending and inventory restocking but by broader based foreign and domestic demand. As previously mentioned, PCEs are up and increasing; retail sales (a smaller subset of this data) are also doing well. Businesses are investing and commercial real estate is coming back. While the increase in demand is still new, it is there. A broader economic recovery implies one that is harder to slow down by external shocks.
