To some extent, of course, results in VA and NJ were about key segments of the electorate (such as suburban voters and white women) returning to their ideological comfort zones, but the results there were more about a general dissatisfaction with the direction of the country; that was the key driver in the defeats of two Democratic governors.

While passing some type of health care reform will almost certainly provide a boost to Democrats, we believe that the prolonged focus on health care reform--by Congress and the media--is frustrating voters who continue to be more concerned about the economy. This is why we saw the President announce a "Jobs Summit" this morning. Where has the White House political team been since January? Under a rock?

A lot can--and will--happen in the next 12 months that will impact the 2010 midterms. The generic congressional ballot, however, is one of the better predictors of future election outcomes and the trend is undeniably positive for Republicans. Below is a regression trend going back a little over one year. Just for fun, if we project this out to Election Day 2010 we're looking at a GOP landslide. That, of course, is unlikely, but it does show that Democrats should be concerned with the overall trend.

Some additional notes on the current environment, informed by last week's exit polls:

1. The GOP swept VA and won the Governor's race in NJ by flipping the Obama coalition on its head. Yes, turnout was lower (normal for off-year elections and unsurprising considering turnout for the 2008 Presidential election) but independents, suburban voters and even young voters (in VA) went for the Republicans. Obama won VA by 7 points and NJ by 20! These two maps really tell the story (click for the larger originals):

2. The economy was a key driver of anti-incumbency sentiment last week and this will continue unless perceptions of economic performance improve. While the Dow is soaring again, unemployment has hit 10.2%. Despite the growing talk about a recovery, it has yet to hit Main Street. A recent Ipsos/McClatchy poll shows that only seven percent of Americans believe that the U.S. economy has "turned the corner." From most voter perspectives, the economy is still a mess and they are unsatisfied with the Democrats' response. This is confirmed by the exit polls:

• 89% of NJ voters were worried about the economy and Christie won 51% of the vote among them (Corzine 43%, Daggett 5%).
• 85% of VA voters were worried about economy and McDonnell won 63% - 36% among that group.

In short, voter attitudes regarding the direction of the country are really hurting the President and Democrats right now.

3. All politics is local, but the perception is that local economic woes are due to national, systemic problems. The storyline is that the recession was the result of insufficient regulation and excessive speculation on Wall Street, and it's clear that voters now believe that these type of things fall under the purview of the federal government. This skepticism toward the federal government's ability to deal with these problems was further reinforced by reactions to the stimulus.

4. The exit polls confirm that we're still in a "change" mindset. Republicans also won handily among independents (66-33% in Virginia and 60% - 30% - 9% in New Jeresey).

• Thirty-nine percent of NJ voters said "change" was the most important quality, not "honesty," "experience," or "values," and "change" voters broke 67% - 26% - 7% for Christie.
• McDonnell also won the youth vote 54% - 44%. While this group represented just 10% of the turnout, it is a surprising result for a socially conservative Republican.

5. The stage may be set for another wave election. Suburban voters and white women favored both Christie and McDonnell after breaking for Obama in 2008. These groups were key to both Clinton's victory in 1992 and the subsequent swing back to the GOP in the 1994 midterms. While the economy was not front-and-center at that time, the failure of a transformative liberal agenda to properly address issues sounds familiar. Again, we must stress that we are a long way away from Election Day 2010 and this is just one scenario--if an increasingly plausible one.

Our assessment of the polls suggests that McDonnell will win decisively in Virginia (easy pick), Christie will narrowly take New Jersey (hard pick) and Hoffman will take NY-23rd. While each of these races has its own unique political environment, the collective sweep does tell us a few things from a macro perspective.

1. Obama is personally popular but voters remain unsure of the effectiveness of his policies. That is why his personal popularity does not necessarily translate into help for either Corzine or Deeds. Poll after poll shows that the President is well-liked but voters are not yet convinced that his policies are moving the country in the right direction.
2. It's still all about the economy and, to some extent, Democrats are being punished for it. This, of course, can change in the next six months but for now voters are willing to look to Republicans for answers (even with a weak candidate like Christie).
3. This is what happens when a change election environment comes back to bite you. Democrats were all about change in 2008 but the shoe doesn't fit as well in 2009. Voters are dissatisfied with the direction of the country and they still want some sort of remedy. This was a difficult case for Corzine to make given the fiscal mess in New Jersey but Deeds simply blew it on this measure.

However, things are not all rosy for the GOP. Here are four reasons why Republicans should still worry:

1. The Republican Party image is in disrepair and this will continue to cast a negative shadow on all of its candidates.
2. The Democrats own the WH and Congress, so the Party will be the beneficiary of the eventual economic recovery.
3. The person most identified with the GOP today is Sarah Palin and, given her current image attribute ratings among voters, she is probably unelectable in a general election scenario. The latest WSJ poll had her at favorability rates at 46% negative and just 27% positive.
4. At this time, there are no tangible brand benefits to voting for a Republican. Certainly there are opportunities (e.g. tough on spending, economic growth without increased taxes and a hard line on terrorism), but until the GOP attaches itself to meaningful solutions to important issues, it will not regain dominance.

New Jersey Governor

Tomorrow will likely validate one of the best truisms in politics: an incumbent will get what s/he polls. In virtually every poll taken, Corzine has been hovering around 40%. It is highly unlikely that his vote share will exceed this number. Voters already know him, and they either like him or they don't like him; there are few, if any, voters who remain undecided on Governor Corzine. The wild card, of course, is third party candidate Chris Daggett. If he gets to 15% then Corzine has a chance. Our analysis of public and private polls has Christie winning narrowly while falling well short of 50% of the vote. We believe Daggett will finish with about 10%, a remarkable showing for a relatively unknown independent candidate. What has kept the race close is the failure of the Christie campaign to define its candidate in a positive way. As Tom Jensen of PPP points out, Corzine will need to win 12% of the vote among voters who have a negative opinion of him. It is probably not going to happen.

Virginia Governor

Last year at this time, pundits were heralding a new era of politics. In their view, Democrats--led by Barack Obama--had reshaped the political map and turned red states into blue states (or, at the very least, purple states). Well that was yesterday. Look! Virginia is red again. Republicans had the better candidate and an aligned electorate. Deeds' campaign has been flailing and unfocused since its hysterical swings at McDonnell over his thesis. Message discipline is key in politics and the Deeds campaign had very little of it.

NY-23

There isn't much heavy lifting to be done with the polling for this race. We can start by tossing out any polls that began fielding prior to Republican candidate Dede Scozzafava's withdrawal from the race on Saturday. That leaves just two results from the past few hours: Hoffman +17 and Hoffman +5. While Scozzafava has endorsed her Democratic opponent Bill Owens, the lion's share of her votes seem to have found their way to Conservative Doug Hoffman, whose insurgent candidacy from the right has been surprisingly effective. Scozzafava's flame-out is especially interesting in light of the fact that incumbent John McHugh, a relatively moderate Republican, won handily with 63% and 65% of the vote in (respectively) 2006 and 2008. This, in a district Obama won 52% - 47%.

Positives:

1. The President's activist agenda is in strong contrast to Bush and perceptions of the last years of the Bush presidency. Few voters are likely to say that Obama is not trying to do something. While some pundits will argue that Obama is overexposed, we disagree. His offensive on healthcare the last 45 days has been a plus. There are simply too many diversions in our digital, 24/7 media world that keep people from paying attention. His improved approval rating is a reflection of this. One possible negative implication is the growing perception that his activity is a sign of big government intrusion. A must-read on this topic is a piece filed yesterday by Liz Sidoti of the Associated Press.
2. Sotomayor. The handling of the Sotomayor nomination to the Supreme Court was terrific and helped steady the ship in early August. While there was some grumbling from Republicans about the choice of a "Wise Latina" the end result was that Obama was able to replace Souter with someone who is just 55 years young and certainly tilts the court further to the left. This is not just a victory for progressive jurisprudence, however, but also from a PR standpoint: while expending minimal political capital, Obama was able to make history by naming the first Hispanic and third female to the SCOTUS.
   
3. Despite early PR blunders on health care, the President's reform campaign over the last 30 days has stopped the public opinion bleeding. Two things have happened: first, the public is more likely now to believe that health care reform is a top priority than back in July; and second, voters are less apprehensive that the plan would not harm them. This tells you one thing: the President never should have outsourced the first phase of healthcare reform to Congress. Team Obama said they were doing that because of lessons learned from Clinton's healthcare push in 1993. If so, they learned the wrong lesson.
   

Negatives:

1. The President and his team appear to have misinterpreted their 2008 victory as a mandate for social change. Uncharacteristically, this appears to have been done with little regard to actual public opinion. Voters last November were looking for change, but it was almost all about the economy/jobs (and, to a much lesser extent, Iraq). Obama's approval rating drop is tied to the rising unemployment rate and a belief that he is not solving the nation's economic problems. As long as consumer confidence lags, so will the President's numbers.
2. The "stimulus package" was a PR bust. In a recent WSJ poll, less than half of voters (46%) thought the stimulus prevented a greater downturn. According to a CBS poll from last week, while a plurality (47%) see the stimulus as making the economy better in the long run, nearly as many see it as either making the economy worse (21%) or having no impact (24%). The bottom line is that the focus should have been on jobs. A late September survey conducted by Democratic pollster Geoff Garin for the Economic Policy Institute showed that more than 8 in 10 registered voters (81%) thought that the Obama administration needs to do more about unemployment and disappearing jobs. Only 13% thought the president had done enough. Again, polls showed support for a targeted jobs package with a combination of some infrastructure investment and tax cuts. All of which would have been tough to argue against and may have even garnered bipartisan support.
   
3. Team Obama misplayed healthcare from the get-go. They aimed big, which isn't a bad thing, but they aimed so big that it has come crashing down on them. Then, to make matters worse, they learned the wrong "lesson" from 1994 ("don't give them an actual plan to pick apart") and came across as indecisive and unprepared due to their lack of specificity. Public opinion polls show that there is support for substantive change to our healthcare system, but there are a lot of items they should have and could have accomplished with bipartisan support (electronic medical records, health insurance reform vis-à-vis pre-existing conditions, etc.) that would have allowed them to claim health reform "victory" while setting them up for more substantive change down the road. The key lesson from 1994 was "don't bite off more than you can chew (in other words, more than the people want and are ready for)" and they whiffed on that. The public decided that covering more people but allowing everyone who currently has coverage to keep the same coverage without spending more money was probably impossible. We may still see bills pass the floor of both the House and Senate in the coming weeks which would cause the public's perception of Obama's handling to rebound; however, it is undeniable that a good measure of damage has already been done.
   
4. The White House miscalculated the seriousness and intensity of the Town Hall meetings and then added insult to injury by saying that the town hall participants were not legitimate, which only served to make voters angrier. The tactic backfired in a big way.
   
5. Obama ran as the "anti-politician" but his job now is inherently political, which diminishes his biggest attribute. This partially explains Obama's rapid approval rating drop. It is not necessarily because of his policies (although some of it assuredly is); it is because of the fact that he is doing anything at all. Before he was above the fray, now he is in it.
   

1. The Nobel Peace Prize. It is obvious how the prize feeds the negative perception that Obama is overly lauded despite having a thin record of actual accomplishments. However, it was completely beyond the White House's control that a group of six inscrutable Norwegians decided to bestow the Nobel Peace Prize on Obama. Furthermore, by donating away the monetary prize and treating the honor as a "Call to Action" Obama largely was able to defuse the blowback.

An Up-to-the-Minute Review of the Public Opinion Landscape as of Noon Today:

• The fact that the storyline this morning is about the insurance industry launching a multi-state ad campaign attacking the health care plan - is a positive for the President. A CBS News poll in August had the insurance industry's unfavorable rating at 46%. Although we must say that the attack line -- warning that seniors in private Medicare plans could lose benefits under the legislation - is a pretty good one.
• Obama's approval rating is slowly trending back up. The latest Gallup tracking poll result (released yesterday) now shows Obama at 56% approval and 36% disapproval. Our synthesis of the most recent public and private polls has his approval rating at 53% and disapproval at 41%. This is a marked improvement over 30 days ago. At that time his disapproval rating was at 45% according to our average of all polls at that time). Remember that his approval rating drop from the mid-60's was with all major demographic and political groups. It fell 11 points among women and nine points among men; and by 12 points among Republicans, 10 points among Democrats and nine points among independents from April to September. Look for polls to show improvement among these groups in the coming days and weeks.

  
  

• The New Jersey Governor's race will go to the wire but Virginia is almost certainly over. A new Quinnipiac poll has NJ in a statistical tie with the Democrat incumbent Corzine at 40%, Republican Christie at 41% and Independent Chris Daggett at 14%. McDonnell has been up between 8-15% for almost two months. While there was some tightening in VA in mid-September due to the "Thesis" story (especially in northern Virginia), McDonnell appears to have regained his solid lead--due in large part with ads aimed at Independents and women. Enthusiasm for McDonnell is twice that for Deeds according to the Washington Post. In an off year election this is critical. Barring some sort of surprise, Virginia will elect a Republican Governor in 3 weeks.
  
• While stocks are surging this morning, unemployment is still the key driver of public opinion and it remains abysmal. The unemployment rate when Barrack Obama took office was 7.6% and 11.6 million Americans were unemployed. The current rate of unemployment (as of September) is 9.8% and the number of jobless Americans is 15.1 million. Below are the number of payroll jobs the country has lost month-by-month since January. (August and September data is still "provisional.")

  



• The 2010 elections will be almost exclusively about the economy and jobs. While it is speculation at best to estimate the magnitude of losses Democrats might endure it is instructive to look at what happened during the 1981-1982 recession. In January of 1981 when Reagan took office unemployment was at 7.5%. In November of 1982 unemployment had risen to 10.8%. Reagan's approval rating at the time of the election had dropped to 43% (47% disapproval). Democrats picked up 26 seats in the House and one in the Senate. Of course this election will have its own set of variables (including retirements, candidate recruitment, generic ballot, partisan identification) but we do tend to think that two numbers will be hugely important a year from now: the President's approval rating and unemployment. Even if the recession "ends" tomorrow, unemployment is a lagging indicator and that number will almost definitely be higher on Election Day 2010 than it was when Obama took office--representing a substantial drag on Democrats in 2010.
  

Some observations on the political environment and marketplace:

1. Watch Independent voters when trying to assess how well the President is doing. While Independents gave the President strong job approval ratings in the early days of his administration, their disapproval grew rapidly so that by mid-March those Independents disapproving of the President's job rose to nearly 40%. Since that time, this number has dropped to around 30%. Our sense is that the President needs to keep his disapproval rating among Independent voters either at or below 40% to successfully sell his policies.

2. If the current trend continues, within the next 60-90 days a majority of the country will think things are going in the "right direction" for the first time in nearly six years. Not since the first quarter of 2003 (just prior to the start of the Iraq war) has a majority of Americans believed that things were going in the right direction. National polling suggests that there has been substantive improvement in the perception of the direction of the country in the last several months. Since the election, the percentage of Americans who think the country is off on the wrong track has declined by more than 20 points. In fact, the biggest drop was the period between the election and the President's inauguration, and there has been a steady wrong track reduction since that time. Today, the country is almost evenly-split between people believing that things are going in the "right direction" and those who think that the country is "off on the wrong track."

3. It's almost all about the stock market. We should really start calling it the political-economy. If you are trying to figure out whether Americans are feeling better or worse about the President or the economy, just check the stock market. Since March 9th, when the Dow hit bottom at 6547 it has improved nearly 25% to 8254 (at the time of this writing).

DOW Jones Industrial Average in 2009

Now look at public opinion polling on the state of the economy. For nearly one month after passage of the stimulus bill and its signing by the President on February 17th, there was very little movement on the measure. Approximately 70% of voters thought the country was getting worse for that period of time. It wasn't until the market uptick that started in the middle of March that you began to see fewer people saying that the economy was worsening and more saying that it was getting better. Of course, the media echo chamber is a contributor, as were some of the data (economic indicators) we began seeing the last month. During the same period, we also saw the President's job approval improve. While they will never say it, the White House political operatives are paying close attention to the stock market because for the immediate future, their success is intrinsically tied to it.