America’s presidential election is now just six months away. Ifhistory is a reliable guide, the outcome will depend significantly on theeconomy’s performance between now and November 6, and on Americans’ perceptionof their economic future under the two candidates.

At the moment, America’s economy is limping along with slow growth and highunemployment. Output grew by just 1.5% lastyear, and real GDP per capita is lower now than before the economicdownturn began at the end of 2007. Although annual GDP growth was 3% in thefourth quarter of 2011, more than half of that reflected inventoryaccumulation. Final sales to households, businesses, and foreign buyers rose atonly a 1.1% annual rate, even slower than earlier in the year. And thepreliminary estimate for annual GDP growth in the first quarter of 2012 was adisappointing 2.2%, with only a 1.6% rise in final sales.

The labor market has been similarly disappointing. The March unemployment rate of 8.2% was nearly threepercentage points above what most economists would consider a desirable and sustainablelong-run level rate. Although the rate was down from 9% a year ago, about half of the change reflected a rise in the numberof people who have stopped looking for work, rather than an increase in jobcreation and the employment rate.

Indeed, the official unemployment rateunderstates the weakness of the labor market. An estimated 6% of allemployees are working fewer hours per week than they would like, and about 2%of potential employees are not counted as unemployed because they have notlooked for work in the past few weeks, even though they would like to work.Adding these individuals to those officially classified as unemployed impliesthat about 15% of potential labor-force participants are working less than theywant.

Solid increases in payroll employment atthe start of the year contributed to a general sense of confidence. But therate of increase in payroll employment fell in March to less than half of therate recorded in previous months, and the number of workers claimingunemployment benefits recently jumped to a four-month high.

Even those who are working are seeing their incomes shrink. Real averageweekly earnings have fallen in recent months, and are now lower than they were18 months ago. The broader measure of real per capita after-tax personalincome has also been falling, and is back to levels last seen a year ago.

Despite their declining incomes, households raised their spending in early 2012 at a rapid pace by cuttingtheir saving rate to just 3.7%. Without furtherdeclines in the saving rate from this very low level, consumer spending willnot continue to grow as robustly. Recent reports of declining consumerconfidence reinforce the likelihood that spending will slow in the monthsahead.

Moreover, the housing market remains in badshape. The most reliable index of comparable house prices has continuedto decline month after month, and prices are now about 7% lower in real termsthan a year ago, implying a $1 trillion loss of household wealth. With roughly25% of all homeowners with mortgages owing more than their homes are worth, the decline in house prices reflects high rates ofdefault and foreclosure. Falling prices, together with stricter lendingstandards, has spurred a shift by would-be home buyers to the rental market,causing recent declines in the sales of both new and existing homes.

The weakness of America’seconomy is not limited to the household sector. Industrialproduction has been unchanged for the past two months, and utilizationof industrial capacity has declined. And the monthly purchasing surveysconducted by the Institute for Supply Management now indicate weaker activityamong service firms as well.

Looking ahead, strong headwinds imply that it will be difficult to achievebetter economic performance in the rest of the year.Higher energy prices are reducing real household spending on non-energygoods and services; weakness in Europe and Asiawill hurt America’sexports; state and local governments are cutting their spending; and concernsabout higher taxes in 2013 will dampen both business investment and big-ticketconsumer spending.

The economy is thus shaping up to be a serious liability for President Barack Obama, who is likely to place the blame on theconditions that he inherited from President George W. Bush, and on theRepublican majority in the House of Representatives. But the public is likely to place the blame on the president,and surveys indicate that a growing number of Americans believe that MittRomney, the almost certain Republican candidate, would do a better job thanObama at managing the economy.

The polls are very close, and voters have not yet locked in their decisions.The economy could rise more sharply than expected in the months ahead. If not,Obama will try to shift attention from the overall economy by emphasizing hisplan to raise taxes on high-income individuals. And a variety of other issues,including immigration and the role of women, might influence voters.

But the state of the economy is usually themost important determinant of who wins national elections in the United States. And US economic conditions now favor Romney.