President Barack Obama's second State of the Union address showcased his more centrist, pro-business stance. That new approach may be alienating some of his base, but it's had a salutary effect on stocks and Obama's approval ratings. The Dow Jones Industrial Average ($INDU) has added about 800 points since the Democrats were "shellacked," as the president described it, in the midterm elections, while his approval ratings have moved above 50%.
But as much as the market and Corporate America may like what they heard in the president's speech Tuesday night, if history is any guide, Obama's reelection in 2012 remains pinned to creating income growth with new jobs, according to research from Jeffrey Kleintop, chief market strategist at LPL Financial.
The 3% Threshold
True, Obama named General Electric (GE) Chief Executive Jeffrey Immelt as chairman of his outside panel of economic advisers, presumably because Immelt knows something about building a workforce and generating export growth. And naming former JPMorgan Chase (JPM) executive William Daley as White House Chief of Staff likely gives the administration more cred on the Street.
But unless those guys can whip up some impressive personal income growth in a hurry for Americans, history doesn't favor the president getting a second term. At least that's what the data suggest by Kleintop's reckoning.
"Inflation-adjusted, after-tax income growth of about 3% appears to be the threshold for incumbents to get 50% of the popular vote," Kleintop writes in his weekly note to clients. Anything below that tends to favor the challenger. See the chart below.
As of now, this measure of per capita income is growing at just 1.4%. That means it will need to more than double in the 12 months leading up to November 2012 to favor Obama's reelection.
"Of course, politics can drive economic outcomes, but the economy also affects political outcomes," Kleintop writes. "Clearly, factors other than jobs have a bearing on the election. However, job creation may be the key measure by which his presidency will be judged when he is up for reelection in 2012."
Get info on stocks mentioned in this article: