This is a rush transcript from "Special Report," October 8, 2010. This copy may not be in its final form and may be updated.


PRESIDENT OBAMA: We've now seen nine straight months of private sector job growth. Bu t that news is tempered by a net job loss in September, which was fuelled in large measure by the end of temporary census jobs and by layoffs in state and local governments.

JOHN BOEHNER, HOUSE MINORITY LEADER, R-OHIO: This is not what Americans asked for when they sent then Senator Obama to be our president in the Oval Office. And the pink slips should be going to workers in Ohio.  They should be going to the members of President Obama's economic team.



BRET BAIER, HOST OF “SPECIAL REPORT”: Well, this is what they're talking about, the September jobs report out today. The unemployment rate staying the same at 9.6 percent, but in September, the economy shed 95,000 jobs. Now, the private sector the president pointed out increased employment for the fifth straight month, but not enough to make up any ground on the unemployment rate.

And what effect does all of this have on the election just 25 days away? Let's bring in our panel, Steve Hayes, senior writer for the Weekly Standard, Nia-Malika Henderson of the Washington Post, and syndicated columnist Charles Krauthammer. Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: Well, it's not just that the numbers are bad. It's that the trend line is flat. The administration had a narrative at the beginning that they'd do the stimulus, et cetera, and keep unemployment under eight percent. That didn't exactly pan out.

Then the story line was you have to wait and you will see a recovery. That didn't happen. Now the line is, which Obama repeats everywhere, there is improvement and I'm with you in regretting how slow it is. It's slower than I want but everything is better.

In fact, it's not. The numbers are flat. Unemployment has been over 9.5 percent for over a year now. And when you look at the growth in the economy, itself, which underlies any increase in employment, it was over five percent in the last quarter of last year, then half of that in the first quarter of this year, half of that again in the second quarter of this year. Essentially there is no growth.

And in part the reason unemployment stays so high is because of acts of omission and commission by this administration. One example--business, which have $2 trillion on the sidelines, has no idea what its healthcare cost are going to be as a result of the Obama care and it has no idea what the regulatory atmosphere is going to be as a result of the financial regulation, and no idea what its rates of taxation are going to be.

All of that is keeping money inside, unspent, un-invested, and not used for hiring. And that is a result of the actual actions of this administration.

BAIER: Nia, we talk about the unemployment number. But the under employment number according to Gallup stands at 18.8 percent. That’s a lot of folks out there who have really stopped looking for work when you look at the total number.

NIA-MALIKA HENDERSON, WASHINGTON POST: Yeah, I mean folks are feeling the pain here, and they're angry. And that’s going to show up in the polls obviously in November.

This is a White House who likes to say they don't deal in hypotheticals, but that's essentially what their argument is over the stimulus package. If we haven't acted things would have been much worse.  But people feel that things are really, really bad now. They don't necessarily believe that the recession is over.  So that is going to -- I think for the Democrats, they're facing a real bloodletting come November. And the president hasn't really been able to have a message that people actually believe.  You see him kind of talking about education, for instance, that's what his theme was this week, as a way to talk about the economy. But people are really asking the question that John Boehner has been asking for the last two years, which is, where are the jobs?

BAIER: Steve?

HAYES: I think at this point, these numbers don't really help much. They certainly don't help much. They probably don't hurt much, because this is, as Charles points out, this is the trajectory, where we’ve been.

And I think if you are in the White House you have to be sitting there thinking, how the heck do we talk about this? What do we possibly say? And in a certain way I'm sympathetic with them because they're trying to spin the unspinnable.  The problem with them is I think they're saying several things they can't possibly be saying. They had Austan Goolsbee out today, the president's top economic adviser, saying that in some respects these results were encouraging. It's not encouraging if you lose 95,000 jobs. It's simply not.  And people's perception of whether it's good or bad that’s also a problem.  They don’t sense that it’s encouraging. The bigger problem, though, is what Vice President Biden said today, which I found absolutely stunning. His quote was "The Recovery Act didn't do enough because we couldn't spend enough," which is precisely the opposite of where the entire country is, or vast majority of the country, is on the question of spending and on the question of stimulus.

BAIER: Let's talk about the specific races. First, Nia, in Nevada, the Senate race out there, Senate Majority Leader Harry Reid facing a tough battle against Sharron Angle. The Real Clear Politics average of that has it very close. But in Nevada the unemployment rate is 14.4 percent.  So that really hits home there.

HENDERSON: Very much so. You also saw Reid's camp today trying to push back against some polls that show Angle is closing in on this race. And you also see very much him distancing himself from the president. He is very much the face of healthcare and in many ways, but you don't see him talking about healthcare there. You don't see him talking a lot about the economy.

I think what a lot of Democrats are trying to do in the races is really localize them and talk about what they’ve been able to do, whether it's a project they've been able to do to their states. So that's what they're doing, whereas Republicans are very much trying to nationalize this and tie all of the candidates to Obama. And for Harry Reid, it's very easy to do that.

BAIER: Charles, in Wisconsin, the unemployment there is 7.9 percent. But that Senate race, Ron Johnson the Republican is up nine points according to the average of polls. Earmarks and bringing bacon back to the state doesn't seem to be playing.

KRAUTHAMMER: That's what's so interesting about that race. It looks as if it's least impacted by the pure economic numbers, it's a relatively low unemployment number. And Feingold, the Democratic candidate, who is behind after winning three times, and he is behind by a lot, is a principled liberal. He’s a man who, one of the few Democrats today who is defending Obama-care.

And there is a poll today showing that the majority of Americans want repeal of Obama-care, an amazing number. And yet he stands up like a lot of Democrats running away and saying I voted against it or are just ignoring it. He is a man, who believes in his beliefs, and he has been a steady liberal, a principled liberal as I said, and that is going to sink him in this year.  Its ideology, it’s not just economy.

BAIER: Steve, finally, Ohio -- unemployment there is 10.1 percent. The Ohio Senate race, Rob Portman is up according to the poll 14 point on the average. Rob Portman is an example of someone tied to the Bush administration, former budget director. That whole line by Democrats that the Bush administration policies led us into this ditch, is not selling in Ohio, a place where the president and vice president have traveled 17 times.

HAYES: It didn't work at all. I think part of it is that Rob Portman is a very good candidate. But also if you look at the political environment in Ohio, unemployment is high, higher than the national average, the stimulus hasn't worked.

One of the other problems for Portman's opponent, Lee Fisher, is that he has been at least by title anyway in charge of the state's economic development. That's a terrible thing to have hanging around your neck in this political and economic environment.

BAIER: Very quickly, there are a couple of races in California, the governor's race and the Senate race where Democrats are still holding onto slim leads.  The unemployment there is 12.2 percent.

HENDERSON: And a budget gap of $19 billion. This is a traditionally blue state. It looks like they are hanging on in some ways.  Brown has a little bit of an October surprise situation going on with the leaked voicemail. We'll see how this one plays out.

BAIER: OK, logon to the homepage of FOXnews.com and watch web exclusive report from correspondent William La Jeunesse on what voters across the country have to say about major issues ahead of the midterm elections. Up next, the Friday lightning round.


BAIER: And we're back with our panel. Every week on the foxnews.com “Special Report” page viewers vote on what topic we should discuss first during this, the Friday lightning round.

The healthcare poll won with 37 percent of the vote. Here is the issue. The latest polls out about this, whether to repeal the healthcare law, have it pretty definitive that above a majority of all voters, 56 percent believe that healthcare law should be repealed. As you see there, Democrats are at 23 percent.

How big does this play in this election? Steve?

HAYES: I think it plays a lot because it fits the broader narrative of a top-down Washington arrogance doing things that the country doesn't want.


HENDERSON: I think so. You see the candidates running on it. I think there are 21 states that are suing to repeal this law. I think Democrats are surprised it has had legs in the way it has over these last months.

BAIER: I hear that from the Democrats that there is surprised it's going as far as it is.

KRAUTHAMMER: Remember why, because at the time it was passed many democratic leaders said as people learn about it, they will like it.  In fact, as they learn about it, they dislike it.

Two things are happening -- their own rates are rising, their employee rates are rising in part of the result of the Obama-care. And secondly, as with McDonald's, a lot of employers are now thinking of dropping insurance that the workers have today as a result of some of the arbitrary provisions in the law. And that's already hitting home.

BAIER: There may be many more to come.

An announcement in the Rose Garden today. Take a listen.


OBAMA: I'm announcing that Jim has decided to step aside as national security adviser later this month and that he will be succeed by his very capable deputy Tom Donilon.


BAIER: General Jim Jones stepping aside as national security adviser. What about this, the timing, 25 days out from an election?  Charles?

KRAUTHAMMER: Well, I'm not sure how significant it is, because after all, the current adviser has not had a strong role. His successor has not a lot of experience in this area at all.

When you think historically of Kissinger, Scowcroft, and Condoleezza Rice, strong foreign policy experts that came in and knew a lot in strategy, this is a very different quality in the national security advisers. As was said in the ceremony, it's about making trains run on time, not about doing grand strategy as used to be the case.

HENDERSON: I mean, I think most people look at this who might not be following kind of national security issues necessarily or who Jones was, it underscores this narrative of Obama's declining popularity. There was one time he was the most popular kid in school. Everyone wanted to sit with him at the lunch table. But now everyone is jumping ship and going to do their own thing.

In that way, that might resonate with the folks more so necessarily than what it means for national security.

BAIER: Tom Donilon, Steve, has a political operative history, a long history. A lot of people say who is Tom Donilon?

HAYES: Right. If you read the Woodward book he was dovish on the Afghanistan war. So the question is what will he do and how much influence will he have? By most account he is one of the people that President Obama listens to with some regularity and he was mentioned as a possible successor to Rahm Emanuel. So I think he's likely to be a pretty significant player.

BAIER: OK, some questions about Austan Goolsbee, what he knew, what he shared about tax information. Listen to this questioning today on FOX Business Network.


STUART VARNEY, HOST OF “VARNEY & CO”: Did you illegally look into the tax files of the Koch Brothers?

AUSTAN GOOLSBEE, WHITE HOUSE CHIEF ECONOMIST: Absolutely not. I never had secret information on them. Everybody knows that. We issued a statement. It's completely not true.

VARNEY: Did you unethically disclose the tax status of the Koch Brothers?

GOOLSBEE: No. I have no secret information about Koch industries at all.


BAIER: The Koch Brothers give heavily to conservative causes.  Charles, what about the secret information answer?

KRAUTHAMMER: Secret or not, nobody in the White House should ever be speaking about the tax status of anybody in the country and certainly not about a company that has supported conservative causes.

A lot of resentment against Nixon was not over a break-in at a hotel.  It was over his misuse and abuse of the IRS. People hate that. They know it's a violation of sort of a very important privacy issue. And it's a mistake to even talk about it in public. He is walking it back, but I don't think it’s going to undo the damage.

BAIER: And Nia, the White House said they wouldn't use that example again.

HENDERSON: This is hard to see how it ends here. You almost think if the Republicans take over the House, there might be an investigation. It's hard to see this as a coincidence because Obama is very much talking about these third party ads and the corporations backing Tea Party candidates. So it's hard to see it as an isolated incident.

BAIER: Steve?

HAYES: John McCormick of the Weekly Standard, one of my colleagues, broke the story three weeks ago and never got any kind of response from the White House. They wouldn't give them a real denial that he didn't in fact look at these records and disclose secret information.

I think it's a problem for the White House that it took them that long. And it's a problem for the White House if they choose a private company to wage war on.

Content and Programming Copyright 2010 Fox News Network, LLC. ALL RIGHTS RESERVED. Copyright 2010 CQ-Roll Call, Inc. All materials herein are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of CQ-Roll Call. You may not alter or remove any trademark, copyright or other notice from copies of the content.