Next 3 months crucial to Obama's agenda

updated 3:17 p.m. ET July 6, 2009

WASHINGTON - Politically and economically, the next three months are critical for Barack Obama's presidency.

The pace of the economic recovery heading into the fall — electric smooth or diesel rough — will determine whether Obama can prod Congress on the key features of his agenda with momentum or from a defensive crouch.

Steady economic improvement that is perceptible to the American public would boost his political standing and give him the thrust to get Congress to complete action on his ambitious plans to overhaul health care, attack climate change and put the financial sector under greater government oversight.

But a stumbling recovery would erode Obama's currently high approval ratings, a source of much of his political power. At the same time, continued high unemployment might force Obama to ask Congress for another boost in spending to stimulate the economy — a political challenge that could delay if not undermine his other goals. So far there is little cause for cheer.

Since Obama signed the $787 billion economic stimulus bill in February, the economy has shed more than 2 million jobs and unemployment now stands at 9.5 percent, the highest in more than a quarter century.

Some calling for another stimulus
Economists and heavyweight Obama backers such as Warren Buffet already are calling for another stimulus, saying the recession proved to be deeper and more devastating than originally believed.

"The economy took away everything they put on the table," said Lawrence Mishel, president of the Economic Policy Institute, a labor-leaning economic think tank.

"We strongly believe we need another stimulus, and we need it now," added Thea Lee, the AFL-CIO's policy director.

Republicans don't agree and are citing the lack of job creation as a sign of a failed Obama policy. "What the president and the administration did was, they miswrote the stimulus bill and got the stimulus wrong," Rep. Eric Cantor of Virginia, the second-ranking member of the House Republican leadership, said Monday.

The need for a new stimulus has been a matter of internal debate within the Obama administration, according to people familiar with internal discussions. But White House officials have made no public commitments.

'Misread how bad the economy was'
Vice President Joe Biden said the administration "misread how bad the economy was" but stands by its stimulus package and believes the plan will create more jobs as the pace of its spending picks up. Obama himself has fretted that spending under the current stimulus package needed to speed up.

Biden, in an interview broadcast Sunday on ABC's "This Week," did not rule out a second stimulus but said it was premature to say whether it would be needed.

Said Mishel: "Publicly they've been quite cautious. Sometimes annoyingly so."

The conundrum for Obama is that his health care and climate plans ultimately rely on a strong economy. A weak recovery that falls short of the administration's forecast of 3.2 percent growth in gross domestic product in 2010 would result in lower than expected revenue and greater potential deficits over time.

Trying to further prime the recovery, however, would require additional short-term deficit spending and there's declining appetite for that in Congress as well.

"Perversely, you actually have to have higher deficits to generate some growth," Mishel said.

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