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The latest economic soundings add more weight to the optimists' view that, regardless of what happens in China, Europe or anywhere else, the U.S. economy is finally propelling itself out of the doldrums. As in recoveries past, the faithful consumer appears to have once again grabbed hold of the steering wheel.

Sifting through the deluge of data at the end of the month, we learned that consumers boosted their spending in February by the most in seven months, amid growing confidence. And the latest surveys show that small business, typically hailed as the engine of job growth in any recovery, is definitely in a more optimistic mood.

No wonder President Barack Obama has decided it's safe at last to make the economy a focal point of his re-election campaign. It's all about perception. If people are feeling better about their economic prospects, chances are they won't have a burning desire to turf out the current White House occupant.

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Of course, translating the economic numbers into voter reaction six or seven months down the road is tricky business. If the recent gains don't translate into real economic growth, if housing remains flat and the jobless rate holds steady at an uncomfortably high 8.3 per cent, all bets are off. When it comes to winning elections, as Bill Clinton famously declared in his 1992 campaign that unseated George Bush the Elder, it's the economy, stupid.

The problem for prognosticators this year is that the U.S. economy is giving off conflicting signals. On the one hand, claims for unemployment insurance are falling at a healthy clip; on the other hand, GDP growth remains lacklustre for a recovery.

"Job growth seems to be outpacing GDP growth and one of these has to give," says Noam Scheiber, author of The Escape Artists, an insightful look at the key players responsible for steering Obama administration economic policy during his first three years in office – and how they managed to drive off the road, with the assistance of a naive, determinedly bipartisan and surprisingly conservative President. "Either jobs are going to come back to where the economy is or the economy's got to catch up to where job growth is. But it's probably not going to stay this way – certainly not indefinitely and probably not even through November."

Mr. Scheiber, a senior editor at The New Republic magazine, says: "If I had to guess, I'd say that we're mostly going to move sideways for the next six to eight months. The economy won't be growing gangbusters and, as a result, job growth is going to kind of move sideways."

All of this points to the prospect of an extremely close election, if the Republicans do the expected and choose Mitt Romney as their standard-bearer.

How the economic scenario plays out "will tell us a lot" about Mr. Obama's re-election chances, agrees Mr. Scheiber, who holds a masters in economics from Oxford. "Opponents matter, but the forces in the economy matter much more. If the unemployment rate stays at 8.3 between now and November … Mitt Romney will look like a much less flawed candidate in four or five months than he will if we continue on an upward trajectory [of growth and jobs]"

Now the key question is what happens after the election. If Mr. Obama prevails, do we see more of the policy paralysis and bitter political divisions that have plagued his first term? Or does he set aside his desire for bipartisan compromise and embrace an entirely different approach?

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He has already become noticeably more outspoken and combative in recent months. "These are all good. One of my major criticisms of him is that he wasn't confrontational enough. He wasn't partisan enough. And as a result, I think they left money on the table when it came to stimulating the economy and supporting a recovery," Mr. Scheiber says.

But a weaker economy does not mean Mr. Obama will try to ramp up the deficit. He remains far more fiscally conservative than most people realize and is uncomfortable with big deficit-spending. Instead, he is likely to stick with planned long-term deficit reduction targets while prying loose some short-term stimulus.

If the battered economy cuts short his political career, prospects under a Romney presidency seem grim indeed.

Mr. Romney is undoubtedly moderate and reasonable "when he's alone with his own thoughts at midnight," Mr. Scheiber says. "But I actually think economic policy would be pretty terrible under him."

The reason is simple. Conservative Republicans don't trust him. So "every minute of his first term, he's going to have to demonstrate to the conservative wing of the party that he's not a fraud. He's actually going to have to go even further to the right on a lot of these things because people are so skeptical and suspicious [of his conservative credentials] He's just got no credibility to move to the centre."

And if he bucks his party's base? Well, George the Elder's fate awaits him. "People see Romney as H.W. Bush [who has endorsed him]to the nth degree, and he's going to spend his entire first term trying to prove them wrong."

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The frightening conclusion to be drawn from all this is that Rick Santorum, whose rightist credentials are not in doubt, would have more flexibility to compromise on fiscal policy. Small wonder, then, that political watchers will be keeping a close eye on the U.S. economy's ups and downs in the months ahead.

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