Unemployment rate: How low can it go by Election Day? Under 8 percent?

President Obama' reelection prospects hang in large part on how the economy is doing by Election Day, and perhaps the most obvious yardstick – and the one Americans care most about – is the unemployment rate.

This is hardly lost on Mr. Obama. "The most important thing we need to do is get more Americans back to work," he said in his Saturday radio address, in which he also previewed a White House forum on Jan. 11 that will feature business leaders who have opted to bring outsourced jobs back to the US.

Though the unemployment rate dipped in December – from 8.7 percent to 8.5 percent – it remains uncomfortably high for an incumbent president seeking reelection. When Obama took office in January 2009 unemployment stood at 7.8 percent, and Republicans will have a heavy cudgel with which to pound him if the jobless rate is worse almost four years later than it was then.

Commenting Friday on the latest unemployment figures, Republican House Speaker John Boehner laid down a marker of sorts: “Today marks the 35th consecutive month of unemployment above 8 percent, and too many Americans continue to struggle to find their next job.”

So, could the unemployment rate sink below 8 percent by Election Day?

It's possible but not likely, say some leading economists

It all depends on whether the economy can create jobs at the rate of about 268,000 a month between now and November, says Mark Zandi, chief economist at Moody’s Economy.com, in an interview. That's been the average monthly gain for the past five months, according to the Labor Department's survey of households (which differs from the department's survey of businesses because it includes new hires by small businesses). During that time, the unemployment rate has fallen from 9.1 percent to 8.5 percent.

But Mr. Zandi doubts the economy can sustain that rate of job growth. “I don’t think we’ll see consistent job gains at that pace,” says Zandi, who was an adviser to Sen. John McCain’s presidential campaign in 2008. 

However, the labor force has not been growing at its usual clip, and that could help the unemployment rate to fall, argues economist Robert Brusca of Fact & Opinion Economics in New York. The labor force has been growing of late at a rate of about 0.7 percent, he says.

“It used to be you needed job growth of 150,000 [a month] to keep the unemployment rate from rising” because of the expanding population, says Mr. Brusca. “Now, it might be as low as 85,000 to 90,000 jobs per month.”

Adding about 90,000 new jobs a month would keep the unemployment rate at 8.5 percent. To reduce the rate to 8 percent, Brusca calculates, the economy would need to create 2,057,000 jobs between now and Election Day, or an average monthly rate of 260,000. And that's just what it’s been doing for the past five months.

The big unknown, says Brusca, is how much the labor force will grow during that time. Like other economists, he’s not sure why fewer people are in the workforce. Is it because wages have been flat and people don’t see it as worthwhile to search for work? Is it baby boomers slipping off into retirement?

A drop in immigration may be part of the explanation, says Zandi. He observes, too, that the largest decline in workforce participation is among white female college graduates. Some reports indicate that they have stopped looking for work and returned for additional education.

Labor Department surveys show 2 million more people than in 2007 indicate that they want to work, says Zandi. “You would think they would start stepping back into the labor force,” he says. “That’s why it will be tough to get below 8 percent by Election Day."

The Moody’s economist says the issue will be moot if Congress does not extend the payroll tax holiday past February and, likewise, extend unemployment benefits. If Congress does not act, it will cost the economy 600,000 jobs, calculates Rep. Chris Van Hollen (D) of Maryland.

That figure is about right, says Zandi, because the payroll tax holiday and extended unemployment insurance add about $175 billion to the economy, or 1 percent of gross domestic product. “You could not pass it and take a chance [that] everything works out OK, but I think that would be a mistake,” he says.

The way Zandi sees it, passing the legislation is like an insurance policy that the US can survive any economic downturn that might result from the ongoing financial crisis in Europe.

“If Europe becomes a bigger problem, the cost to the taxpayers will be more than $175 billion,” he says.

If the unemployment rate dips below 8 percent, would that blunt the Republican attack?

Probably not. On Friday, Speaker Boehner, in subsequent analysis, noted that the unemployment rate averaged 9 percent in 2011, and he said that 600,000 jobs were lost since the $787 billion economic stimulus was enacted in the spring of 2009.

That may be why, in his radio address, Obama characterized this as "a make or break moment for the middle class." It may be one for his reelection bid, as well. "We've got to keep at it. We've got to keep creating jobs," he said.