In his State of the Union response the other night, Indiana Governor Mitch Daniels neatly summed up Mitt Romney’s (who has a roughly 90 percent chance of being the GOP nominee according to Intrade) economic case against President Barack Obama: “The president did not cause the economic and fiscal crises that continue in America tonight, but he was elected on a promise to fix them, and he cannot claim that the last three years have made things anything but worse.”
In other words, the Obama Recovery stinks. Even if today’s GDP report—for the fourth quarter of 2011—shows 3 percent growth or better, it would be just the fourth time that has happened since the economy began turning up in June 2009: 3.8 percent in the fourth quarter of 2009, 3.9 percent in the first quarter of 2010, and 3.8 percent in the second quarter of 2010. But no 3 percent-plus quarters since then.
The first nine quarters of the Reagan Recovery, by contrast, looked like this: 5.1 percent, 9.3 percent, 8.1 percent, 8.5 percent, 8.0 percent, 7.1 percent, 3.9 percent, 3.3 percent, 3.8, percent, 3.4 percent. In fact, the Reagan Boom went from the first quarter of 1983 until the second quarter of 1986 without notching a sub-3 percent GDP quarter.
So, while the Reagan Recovery quickly made up for lost years of growth, not so much for the Obama Recovery, as this chart in today’s Wall Street Journal makes clear:
And few economists are expecting the Obama Recovery to take off anytime soon. The IMF predicts just 1.8 percent growth for 2012 (and that’s assuming no EU sovereign debt meltdown). And the Federal Reserve sees growth in the 2.2 percent to 2.7 percent range with unemployment around 8.2 percent to 8.5 percent. Ugh!
The WSJ offers two explanations for the anemic rebound:
Economists say the nature of the recession helps explain the slow recovery. Aftershocks from the financial crisis have left banks reluctant to lend, making it hard for companies, and especially start-ups, to get access to capital. The housing market, which has historically helped lead the economy out of recession, remains deeply depressed.
Many business leaders say they are also being held back by policy-related uncertainty, everything from the threat of new regulations and higher taxes to the fear that political gridlock could hamper the government’s ability to respond to a new crisis. Recent economic research has given some weight to those complaints. A study by a trio of academic economists found that policy uncertainty has risen in recent years, and that periods of uncertainty have in the past corresponded with rising unemployment and slowing growth.
Whichever explanation holds more weight with voters may go a long way toward deciding who’ll be America’s next president.
UPDATE: GDP came in at 2.8 percent, slightly worse than expected. Here is what JPMorgan says in a hot-off-the-presses report entitled: “Acceleration in GDP growth may be short-lived”:
Fourth quarter GDP growth was a disappointment. While the 2.8% annualized growth rate realized last quarter was the best in over a year and only a touch weaker than expectations, the composition of growth did not have favorable implications for future activity.
Real final sales advanced at only a 0.8% rate, meanwhile inventory-building contributed 1.9%-points to growth last quarter, a temporary boost that may weigh on production in the first half of this year. Consumption grew at a 2.0% rate, a touch less than expectations, and business fixed investment grew at an expansion-low 1.7% pace. Government consumption declined at a 4.7% rate, pulled down by a big drop in defense spending, and net exports shaved 0.1%-point off US growth last quarter. We are maintaining our outlook for 2.0% growth in 1Q12, but acknowledge that we will need to see more things go right than wrong in order to realize that forecast.
First prints of GDP don’t have a lot of information about the income side of the economy, but what news there was wasn’t great: real disposable personal income increased at only a 0.8% annual rate, after declining the prior two quarters. On a year-ago basis real disposable personal income declined 0.1%, the only decline ever recorded in a non-recession environment.
James Pethokoukis is a columnist and blogger for the American Enterprise Institute and an official CNBC Contributor.
Previously, he was the the Washington columnist for Reuters Breakingviews. And before that, he was the business editor and economics columnist for U.S. News & World Report. Pethokoukis has written for many publications including The New York Times, The Weekly Standard, Commentary, The Daily, USA Today, and Investor’s Business Daily. In addition, he has appeared numerous times on MSNBC, Fox News Channel, Fox Business Network, The McLaughlin Group, CNN, and Nightly Business Report on PBS. A graduate of Northwestern University and the Medill School of Journalism, Pethokoukis is a 2002 Jeopardy! champion.