Economic news stirs campaigns

The economy shoved its way to the front of the presidential campaign once again, as the nation’s jobless rate shot to a five-year high -- escalating fears that the country is spiraling into a full recession.

The unexpected jump in unemployment -- from 5.7% in July to 6.1% in August -- provided prime fodder for both presidential nominees as the fall campaign season kicked into high gear. But with a Republican now in the White House, analysts said the news would give Democrat Barack Obama an edge over Republican John McCain.

“No party holding the White House has ever won an election in the midst of a sour economy,” said Allan Lichtman, a presidential historian at American University. “What matters is the direction of the economy and of unemployment . . . and in this case the direction is down.”

The U.S. has now shed 605,000 jobs since the beginning of the year, the Labor Department said Friday.

“The unemployment numbers certainly shift the spotlight and elevate the economy issue,” said Craig Smith, a former speechwriter and aide to presidents Gerald Ford and George H.W. Bush who now teaches at Cal State Long Beach. “These figures generally hurt the McCain campaign and help the Obama campaign.”

Obama pressed that advantage during a forum with voters in Duryea, Pa., criticizing McCain for saying the “fundamentals” of the U.S. economy were sound.

“What’s more fundamental than having a job, seeing your income keep pace with inflation and watching your child walk off the stage with a college diploma in their hand?” Obama asked. His GOP rival, he added, “doesn’t get it.”

For his part, McCain ended his Cedarburg, Wis., rally Friday morning by touting his plans for tax cuts as an answer to the troubling jobs report.

“These are tough times. Today the jobs report is another reminder these are tough times, tough times in Wisconsin, they’re tough times in Ohio, tough times all over America,” McCain said.

McCain charged that Obama would raise taxes and he would cut them. (Obama has said he would offer a tax cut to 95% of Americans by ending tax breaks to some corporations, including those that ship jobs overseas.)

“I’ll keep taxes low and cut them where I can; my opponent will raise your taxes,” McCain said. “I’ll open new markets to our goods and services; my opponent will close them. I’ll cut government spending; he wants to increase.”

The state of the economy is a tricky issue for McCain, in part because it works to his disadvantage in two key electoral states with high unemployment: Michigan and Ohio.

Michigan voted very narrowly for Democrats in the last two presidential elections, and Republicans had hoped to swing it to their side of the ledger in this one. But Michigan has the highest unemployment rate of any state in the country -- 8.5% in July -- and a large percentage of disproportionately affected blue-collar and auto industry workers.

Ohio, another crucial state for both parties that has been hit hard by losses of manufacturing jobs, had an unemployment rate of 7.2% in July.

“The bad news for McCain is that these unemployment numbers have the most impact on the states that matter the most for McCain’s winning,” Smith said. “They must carry Ohio. If they lose Ohio, they lose this election.”

California’s unemployment rate remains significantly higher than in most of the rest of the country, hitting 7.3% in July -- a 12-year high. Unemployment is even higher in metropolitan Los Angeles, 7.5%, and is close to 9% in Riverside and San Bernardino counties, which have been slammed by the housing downturn.

At a job center in Los Angeles on Friday, July Alas said he had not been able to find steady work since he left a plumbing job two months ago because he couldn’t get along with his boss. He said his mother was helping him out financially, but he’s had to stop going to movies and couldn’t afford to buy things he’d like, including a couch and TV set.

“It’s been pretty rough -- you’re limited in what you’re able to buy and you can’t go out as much, which affects everything else,” Alas said. “I’m making it only because of my mom. It seems like a lot of young adults these days are having to fall back onto their parents and rely on their support.”

Alas said that he expected the economy to dominate the campaign -- and that he planned to vote for McCain.

“I’m pretty sure bringing down the unemployment rate will be one of McCain’s top priorities, because it’s a major crisis right now,” he said.

A recession is popularly defined as a drop in gross domestic product for two straight quarters. That hasn’t happened yet, although growth has been anemic for most of the year. But as Bank of America economist Peter Kretzmer pointed out Friday, “There’s been no time in the postwar period where the unemployment rate rose this rapidly and this far without the United States being in recession.”

The Labor Department numbers released Friday show that the economy has been losing jobs at a fairly rapid pace since the beginning of the year. Revised figures show that the economy has lost 605,000 more jobs than it has created -- an average of 76,000 a month. The economy needs to create about 100,000 jobs a month to keep pace with population growth.

The last time the unemployment rate was above 6% was in the fall of 2003, as the economy was recovering from recession.

In addition to flagging global demand, economists blamed the collapsing housing sector for spreading its contagion to the rest of the economy. Foreclosures have reached an all-time high in the U.S., a trade group reported Friday, with 2.75% of all mortgages in default last quarter, up from 2.47% in the first quarter. That’s nearly double the rate of last year.

“The combination of rising prices, the housing debacle and the worsening credit crunch is cascading through the economy, hurting employment,” said Sung Won Sohn, an economist at Cal State Channel Islands in Camarillo.

Sohn pointed to the “lackluster” back-to-school sales reported Thursday as “another telltale sign of weakening consumer spending.” He noted that “prices have been rising faster than income, eroding buying power.”

The unemployment report was significantly worse than most economists had expected, and stocks initially sank on the news before recovering. The Dow Jones industrial average, which fell nearly 350 points Thursday, ended Friday with a gain of 32 points to 11,220.96.

Lichtman, the historian from American University, said that so far McCain had somewhat succeeded in presenting himself as a “maverick,” casting blame for the nation’s economic woes on “Washington,” not on the current administration.

“I’ve reached out my hand to those on the other side of the aisle to work for a common good,” McCain said Friday in Wisconsin. “Sen. Obama never has, and that’s why this ticket is the ticket to shake up Washington and get things done for you -- for our people.”

Lichtman said McCain was trying hard but history suggested that he would be unable to entirely separate himself from the legacy of the current Republican administration.

“I’ll bet you the average person could not tell you one single way John McCain’s approach to the economy differs from George W. Bush’s,” Lichtman said. “History shows that when you are the nominee of the party holding the White House, you can’t run away no matter how hard you try from the president of your own party.”

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maura.reynolds@latimes.com

Times staff writers Tiffany Hsu in Los Angeles, Noam Levey in Duryea, Pa., Marc Lifsher in Sacramento, Peter Gosselin in Washington and Maeve Reston in Cedarburg, Wis., contributed to this report.