Significance: U.S. voters registered their frustration with the slow pace of economic recovery and their unease with the administration's priorities, allowing Republican candidates to prosper with rather ill-defined promises of "change".

Implications: President Barack Obama is now compelled to find common ground with a good number of Republicans in the House and Senate to make legislative progress. This also entails government responsibility for the Republican House leadership, nonetheless, and there will be some difficult compromises to be made on both sides.

Outlook: With the Senate still in Democratic hands (albeit not with a "super-majority") the political outlook ahead of the 2012 elections is messy, and landmark legislative progress is unlikely. One should not write off the Obama presidency, however, as policy compromises are not impossible and a recovering economy could start to tilt political momentum back in his direction.

The Pendulum Swings Back

As had been widely predicted, the Republicans yesterday seized back control of the House of Representatives in the U.S. mid-term elections. As things stand, they have 239 seats, well ahead of the 218 required for a majority. The Democrats have lost 60 seats to their opponents, leaving them with 183 (with 13 yet to be declared). In the Senate, where only 37 of the 100 seats were up for grabs, the swing is less pronounced. At the time of writing, the Democrats have 51 seats and the Republicans 46. This represents a swing of six to the latter, but two of the three remaining undecided seats look likely to go to the Democrats (Colorado and Washington). Several key themes are apparent in the voting patterns:

• Democrats punished over the economy: The main reason that the situation has soured so dramatically for President Barack Obama since his remarkable 2008 victory is the painfully slow economic recovery. He can argue that without the huge government interventions to prop up the financial and automotive sectors and boost public spending the situation would be much worse, but voters have become frustrated with the lack of tangible progress. Republicans have succeeded in painting the interventionist policies as failures, and their message that government has become too big and the deficit unmanageable has found fertile ground. Obama has, moreover, been criticized for trying to push through a broad agenda, while he should have been more focused on the narrower priority of economic recovery. Lack of enthusiasm for the administration meant that many who turned out for the first time in 2008 to vote for Obama (often black and/or younger) failed to turn out this time.

• A mixed night for the Tea Party: The populist rightwing Tea Party movement has become a key political force over the past year (four out of 10 voters said at exit polls that they supported the movement), but yesterday's election showed that it is struggling to win over younger and moderate voters. It may have triumphed in many Republican primaries, turfing out establishment figures in favour of upstarts, but many of the latter fell at the final hurdle. High-profile Tea Party favourites who fell included Sharron Angle (Nevada, Senate), who had high hopes of claiming the biggest Democratic scalp, that of Senate Majority Leader Harry Reid. Christine O'Donnell (Delaware, Senate) failed in what should have been a fairly easy race for her, while Carl Paladino (New York, governor) lost heavily to Andrew Cuomo. In Alaska the Republican incumbent, Lisa Murkowski, looks set to achieve a remarkable victory as a write-in candidate over her Tea Party usurper, Joe Miller. Many of the Tea Party-backed candidates were undone by their chequered backgrounds and limited political experience. Other more savvy Tea Partiers have now broken through onto the big stage, however, most notably Marco Rubio (Florida, Senate) and Rand Paul (Kentucky, Senate). Both were initially shunned by the Republican Party leadership. The overall outcome will probably embolden the Republican establishment to curb the Tea Party's influence and the chances of Sarah Palin (the movement's figurehead) running for president in 2012 appear to have dimmed.

• Big spenders do not always prosper: Much has been made of the huge amounts of money that poured into the mid-terms, much of it from secretive sources, but big spending did not always equate to victory. In California, two female former CEOs spent considerable amounts of their own and others' money, but came up short. They were firstly, Meg Whitman (once of eBay), running for governor against former two-term governor Jerry Brown. The latter now takes over from Republican Arnold Schwarzenegger. Secondly, Carly Fiorina (once of HP) lost out in the Senate race against Barbara Boxer, when she had been the favourite for some time.

Outlook and Implications

A big message from voters was their frustration with Congress, its deadlocks and its messy compromises. Unfortunately, the election outcome promises to make the political situation even messier. The administration cannot advance legislation without significant buy-in from a good number of Republicans in both the House and the Senate, and to date there have been very few areas of agreement. Despite Obama's pledge of a new era of bipartisanship in 2008, this never materialised, and with the 2012 elections now in sight all those up for re-election will be very mindful of their voting records.

On a more positive note, Republican control of the House does confer some responsibility for government, and new House majority leader John A. Boehner cannot afford to simply say "no" to Democratic initiatives. During the campaign, his big promises were to reduce the size of government, create jobs, and fundamentally alter the way the Congress conducts its business, but few specifics were offered on what are very vague goals. He can be a canny dealmaker and may work better with Obama and Harry Reid than many suspect. It remains to be seen how Obama himself reacts to the election results. From the left, there will be pressure to stick to a bold liberal agenda and use the Republicans' opposition against them. From the party's more pragmatic wing, there will be pressure to show he is a unifier and an effective governor. Obama certainly has strong pragmatic instincts, but also has a lot of bold, unfinished business he would like to get done. Republicans have meanwhile promised to undo some of his big achievements to date, most notably healthcare reform—it remains to be seen how far they are willing to push this.

Perhaps the most promising areas for policy compromise and progress in the next two years are:

• Tax cuts: Despite the vitriol, Boehner has previously indicated that he might abandon some of the Bush-era tax cuts for the wealthy in order to see the remainder of the cuts extended. Wider reforms to the tax code may also be possible.

• Alternative energy initiatives: Even if the Republicans are unwilling to make countering climate change a priority (or even acknowledge it as a phenomenon), alternative energy sources can also be sold as a means of breaking U.S. reliance on oil imports from the Middle East and elsewhere, and of competing effectively with China in a fast-growing sector.

• Trade agreements: Although there are plenty of Democrats hostile to trade agreements, the administration has been minded to forge ahead and should find substantial sympathy in the Republican ranks.

• Education reforms: There is broad agreement that George W. Bush's education reforms need some tinkering with and compromise appears possible on an overhaul.