WASHINGTON (World News) -- Bullish yet wary, President Barack Obama is highlighting recent economic bright spots while taking care not to overstate a recovery that still has not put millions back to work.
His Republican rivals, in the face of late-arriving economic good news, are making slight adjustments themselves, arguing that Obama's policies have been a drag on a recovery that could have taken hold sooner.
The competing rhetoric reflects the positive indicators in areas ranging from retail sales and housing to unemployment and falling gas prices. All this has pushed up consumer confidence, a potential barometer of political attitudes. Even Congress and Obama managed to agree on a two-month payroll tax cut extension before leaving Washington for the holidays.
But the economic signs could prove fleeting, as they were in the early spring when economist also detected upticks in activity only to watch them tumble. These new indicators may hold more promise. But a looming European debt crisis is casting a pall.
No one is more aware of that risk than Obama.
"We've got an economy that is showing some positive signs; we've seen many consecutive months of private sector job growth," Obama said last week before departing for Christmas in Hawaii. "But it's not happening as fast as it needs to."
For Obama, the danger is in promoting an economy that while, slowly recovering, has yet to reflect reality for millions of Americans, or in highlighting positive signs only to see them falter in 2012.
For David Axelrod, the Obama campaign's top political adviser, visions of a European financial meltdown are what keep him awake at night.
"I think the American economy is gaining strength, I don't think many would argue that point," he said. "The imponderable is not about that, it's really about these externalities and particularly Europe. Especially now that we've passed this threshold on the payroll tax cut and assuming that the Republicans in Congress don't want to rerun that battle, the one big thing on the horizon is Europe."
Indeed, as the year ends on an up note, leading economists surveyed by The Associated Press expect the economy will grow slightly faster in 2012 - about 2.4 percent compared with the less than 2 percent annual growth that the economy is expected to register by the end of this year.
But underscoring the political challenges facing Obama, these same economists don't expect unemployment to drop much in a year from November's 8.6 percent rate.
The public's economic outlook is improving. An Associated Press-GfK poll in December found that 37 percent of those questioned expect improvement in the economy in the coming year. It was the first time since May that the sentiment significantly outweighed the share saying the economy would get worse in the next year.
This modestly rosy scenario is contingent on keeping any financial disruptions in Europe contained to the other side of the Atlantic. Obama has pressing European leaders, particularly German Chancellor Angela Merkel and French President Nicolas Sarkozy, to act swiftly to avoid a wholesale debt crisis from taking hold. But Obama has few tools other than persuasion with which to influence an outcome.
In a trend the Obama camp is sure to watch, the public is holding Obama more accountable for the economy. The World News-GfK poll found that the percentage who says Obama deserves little or no blame for the economy's sluggishness has declined from 43 percent in October to 36 percent now.
Republicans are watching, too.
After months of asserting that conditions under Obama have worsened, Republican presidential candidate Mitt Romney this past acknowledged signs of improvement, but gave Obama no credit.
"I think the economy's getting better. I sure hope so," Romney told CNN on Wednesday. "There's never been a time when our economy has not recovered from recession. We will recover, but it will not be thanks to the president's policies. It will be in spite of the president's policies."
Republican pollster Wes Anderson, a veteran of congressional and presidential contests, says the first quarter of 2012 could lay down crucial markers that could affect the election results.
"If the uptick in economic indicators that we've seen here this month continues into the next month at the same general pace, it will be an interesting race and it will be very close, and there will be an opportunity for Obama to win," he said. "If economic conditions deteriorate at all, I think he's done.
"If they pick up significantly in the first quarter - I don't know what that is, but something that is tangible for middle-class America - he probably gets re-elected," Anderson said.
The White House is ready to have the president maintain a high economic profile, showcasing his bailout of the auto industry as a concrete example of an administration policy that saved job. Beyond that, Obama's team wants to portray the president as a champion of the middle class.
"The battle is really over the long term because the Republicans have a fundamental theory that we can cut our way to prosperity - cut taxes for the wealthy, cut regulations, especially for Wall Street, and the economy will flourish," Axelrod said. "We've tested that theory and it failed. Badly."
"This notion that he's been there, we should fire him and we should go back to what we were doing before the crisis is not a very strong argument," Axelrod said. "And obviously to the degree that the economy improves it becomes less of an argument."
Still, even economists friendly to the administration see contradictory signals in the end-of-year upswing.
On the positive side, the number of people applying for unemployment benefits has dropped to the lowest level since April 2008. At the same time, November's dip in unemployment from 9 percent to 8.6 percent was partly the result of frustrated workers leaving the labor force and no longer looking to be hired. The private sector is hiring, but states, school districts and local municipalities are shedding jobs. Also, despite an increase in consumer spending, Americans are not seeing real income growth.
"For every positive indicator, there is an indicator on the other side that's worrisome," said Jared Bernstein, former chief economist to Vice President Joe Biden who's now with the Center on Budget and Policy Priorities.
Mark Zandi, chief economist at Moody's Analytics whose data is often cited by Democrats and Republicans, said that for all the encouraging signs, the economy still faces drags. That includes deficit reduction measures that helped reduce the debt in the long term but could cost the economy 1 percentage point in growth next year.
Washington politics poses its own challenges.
"I don't think 2012 is going to be a break out year for the economy," he said. "It is an election year and there is going to be a fair amount of political acrimony back and forth. People in business are already on edge. It doesn't take a lot for them to remain anxious and nervous."
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