Economics, U.S. Economy

The economic chart that may doom the Obama presidency

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.


39 thoughts on “The economic chart that may doom the Obama presidency

  1. The chart seems to show more of a flat line than a recovery. Flat lines are not generally considered good except for unpopular politicians’ careers.

  2. Don’t want to get too granular on this, but I notice the real GDP curve shows it trending away from the nominal curve as of the latest 2011 data. That is, things are bad and still getting worse.

  3. While the chart emphasizes the time we’ve been below the trend line take notice just how much we’ve deviated from the trend line. The time plus depth of the recession is what’s most troubling.

  4. If they hadn’t been brainwashed by the Rupert Murdoch’s right-wing propaganda, the American people would be smart enough to figure out that the previous administration’s starting two optional land wars in Asia might have something to with the downward trend. When you print truckloads of cash overseas to pay off Iraqi warlords, and make the lower classes pay the billionaires’ share of taxes, eventually they stop being able to pay their mortgages.

    • Hmm. Seem to remember Barry Sotero authorizing the Trillion $ stimulus in early 2009. This alone has Dwarfed all previous expenditures. A lighthouse lamp compared to a Mag Light. You must be particularly naive in regards to basic economic theory.

        • Just keep telling yourself that… it might make you feel better. And I (for one) want nothing more than for you to FEEEEEEEEL better.

          Let me guess- you are one of those 99%-dudes with a useless college degree and no trade-skills?

          Must be some billionaire’s fault. Or aliens.

        • Dude, facts are not optional. Obama’s stimulus in 2009 cost more than all six years of Bush’s war in Iraq.

          That “unnecessary military spending is what caused the deficit” meme is so 20th century. And so wrong.

          Besides, I thought Afghanistan was the good war. There has to be some system for when we’re supposed to believe Obama and when we’re supposed to know he’s just blowing hot air to fool stupid independent voters. (Oh, right, there is. When he’s just blowing hot air his lips move.)

    • purusha: Anyone who has a sense of history would agree with you. The experience that Athens had is instructive. It initiated a war with Syracuse in the middle of its conflict with Sparta…with disastrous results. Not only did it not defeat Syracuse, it bled dry its financial ability to wage the war with Sparta.

      I do not like Obama’s domestic policies; they will have the same consequences as the foreign war debacle. We are deep in debt, running horrendous deficits, and he still wants to socialize the economy! Unbelievable!

  5. If you look at recent polling in the Fla. GOP primary, you can see wild swings, which shows that voters don’t pay attention until the last second and are easily influenced by negative personal attacks.

    So, as much as I wish we could count on voters to spend some time learning about what a disaster Obama has been (in which case he will get crushed in November), I’m concerned that the combination of voter apathy and the joint attack dogs of the Democrats/MSM will get him another 4 years…

  6. What I think is even more interesting is looking at the trend from 2004 on. Note that the real growth starts a minor but noticeable deviation to underperformance then. I submit it was Sarbanes-Oxley that really started to kill our economy. Obamacare, Consumer Protection, EPA regulations and Dodd-Frank are just “shooting the wounded”.

    • I worked for a Fortune 20 company and spent a lot of time on creating and implementing SOX compliance processes and procedures and no one in the company or in any of the external seminars I attended to learn more about SOX, was predicting that SOX would help productivity and growth or decrease the already rapidly growing cost and complexity of regulatory compliance.

      For the life of me, I can’t see how SOX could possibly be anything but a significant dampening force on our economy.

  7. What strikes me about this graph is that every recession from 1965 through 2005 reflects a modest return downward to the trendline. That’s a normal and healthy corrective process. The current situation, however, is fundamentally different — unique even — in that it illustrates a sharp, deep and persistent turn downward away from the same trendline.

    Such a shocking breakout to the downside is clearly not attributable to normal economic cycles. In contrast, the same curves for Canada show a much milder, shorter downturn presently returning to the trendline. The difference can be attributed only to American policy and given Canada’s extensive trade with the US it can be argued that the only reason Canada’s recession was not even milder is that it was dragged downward by the American situation.

  8. If one is perspicacious enough to factor demographic change into the interacting dynamic trends, the picture grows even more ominous. And since big government policies which are approved by Obama and those of his ilk contribute more to destructive demographic change than anything else, we can also lay that dead albatross at his table.

    GDP is a hog’s trough of slop. It’s a wonder that the metric is used in serious discussion. But clearly it is in the interest of the powers that be to keep everything as foggy and obscure as possible.

  9. In Obama’s alternative universe the economy is growing at 5%, unemployment is down to 5% and the deficit has been reduced by 80%. Unfortunately we aren’t living in his universe.

  10. I’m looking at the section of the graph that covers 1990-1992, the runup to the election of Bill Clinton. If you look closely, there’s a tiny little dip in the curve. Various talking heads in the media took great delight at the time in claiming that this was the worst economy since the Great Depression, and they blamed President George H. W. Bush for that. But oddly enough, I don’t hear those people blaming our current president for the situation we have now …

    • I was noticing the same thing. Gee, I wonder what’s causing the selective memory lapse in the media? You think it’s the same thing causing the simultaneous lapse in ethics and principle among the same group? Cause and effect?

  11. …make the lower classes pay the billionaires’ share of taxes…

    The lower classes in the US do not pay hardly any income taxes. This is called a ‘fact.’

    Make sure you buy us all T-Shirts from whatever planet it is that you are currently visiting.

    • billionaire factoids:

      there 1210 billionaires, in the world.
      their net worth is 4.5 trillion.

      if we seized all their assets, it would cover only 66% of the deficit accrued, since obama took office.

      please, by all means, let’s kill every goose for it’s golden eggs. nevermind that we have borrowed against their egg laying ability for the entire planned existence of govt.

      this doesn’t end well, but it is also destined to end.

  12. real gdp is up less than 1%, from 2007, while nominal govt spending is 37% higher.

    the ‘great recession’ meme’ is worthless, as real gdp did go to +3%, in 2010.

    2011′s 1.7% growth suggests that real growth has been cut in half, since the end of 2010.

    worth a laugh:
    if it hasn’t been thrown down the memory hole, the wh had their budget projections from 2009 predicting that we would experience 4%+ growth for three consecutive years.

    2011 was supposed to be the second year of the set.

    current projections provide that we are sub 2% for 2012, the third year of the set.

    when obama says “we did not anticipate”, he is really saying that he was incompetent and lacks a basic understanding of business.

    • How would he understand business when he’s never had a job in his life and has surrounded himself with like minded advisors ? The man is a disaster. Great speechwriters though.

  13. Such charts can only “doom the presidency” if folks LOOK at it. Too many O’Bummer supporters prefer to keep their heads in the sand, HOPING that Barry will eventually CHANGE things for the better.

  14. This graphic is great for samizdat to bypass the Legacy media.

    Post it on your Blog’s splash page, print it an leave copies wherever people gather, put it up on bulliten boards, make bumper stickers and T shirts…

    And the big downward curve really starts in 2006 when the Democrats gained control of the House and Senate, another info bite that should be placed out there for everyone to see.

  15. One of the biggest reasons why this recovery stinks is housing. After just about every recession since WWII, housing led the recovery. But not now. We essentially built 12.5 years’ worth of housing in 5 years, and that surplus won’t be gone anytime soon — which means few housing construction jobs and depressed employment/growth in industries that support housing.

    Plus, until the Great Recession, unemployment spiked but then fell relatively quickly (or, in the past 3-4 recessions, more gradually but still falling). Today, though, the only real reason why the unemployment rate seems to have improved is because millions of people have given up looking for work and have exited the labor market entirely.

  16. A totally stupid article. Comparing apples and oranges. The recession that Obama had to deal with INFINITELY worse than the one Reagan had inherited. Let me see the chart that compares the Great Depression, then we’re on surer footing. Most Americans understand this, and that’s why Obama will easily win reelection in November.

  17. “The president did not cause the economic and fiscal crises that continue in America tonight …”

    While Obama wasn’t president until 2009, he was one of only 100 US Senators. I wish the media would quit excusing him of all responsibility.

  18. America is not coming back unless we own our own money,and print it interest free :P

    It doesnt matter who our next president will be,they will be a loser too.

  19. As long as everyone agrees that the real problems are the deficit, too much regulation, and too much taxation, then Republicans will get the failure they want from Obama. The President is in campaign mode, talking “populist,” and I’m sure some people believe him. But by the time his numbers start to really sink, it will be too late to decide that “protecting the banks at all costs” wasn’t such great policy.

    Not that it will matter. Re-electing Obama may preserve a few tattered remnants of the liberal policy agenda, but whether you vote for Obama or Romney, you’re getting a Goldman Sachs surrogate, and a continued move toward an Oligarchy-run Police State. I used to think this kind of language was alarmist; now I’m pretty sure it isn’t. The house is on fire, friends, and it seems we’ve outsourced the fire department.

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