Obama Halftime Report

January 20, 2011

Aside from being the fiftieth anniversary of the Kennedy inaugural, today marks the midpoint of President Obama’s four-year term and thus a good time to compare the U.S. economic performance under his stewardship with how the economy did in the first two years of previous presidencies.  I checked five criteria: real GDP growth, total CPI inflation, core CPI inflation, the unemployment rate, and growth in jobs.  Obviously, these have been difficult times.  Factoring in an assumed 4.0% annualized rise of GDP last quarter, real GDP will have expanded 1.5% per annum in the two years between 4Q08 and 4Q10.  Total and core inflation climbed 2.0% per annum and 1.2% per annum.  The U.S. jobless rate was 7.8% in January 2009 and 1.6 percentage points higher last month.  Jobs contracted at a rate of 1.1% per annum between January 2009 and December 2010.

The interesting discovery is that several of the other presidencies also experienced struggling economies initially.  In this study, the presidencies of Lyndon Johnson and Gerald Ford were not considered, because neither began on January 20 following an election victory the November before.

Real GDP:   The 1.5% pace under Obama was faster than in the first two years of the presidencies of Ronald Reagan (minus 0.1% per annum), Richard Nixon (+0.6% p.a.), and George W. Bush (+1.1%),  and comparable to 1.6% pace in the first two years of the George Herbert Walker Bush presidency.  Economic activity over the comparable two years expanded by 2.9% per annum in Jimmy Carter’s case, 3.4% p.a. under Bill Clinton’s watch, and 5.2% p.a. with John Kennedy.

CPI Inflation:   Obama’s 2.0% total consumer price pace was very similar to the 1.9% per annum increase during Bush43’s initial two years.  Otherwise, only Kennedy’s 1.1% pace was lower, and that’s actually too low for comfort.  Not surprisingly, Jimmy Carter had the highest inflation rate in his first two years, 8.1% per annum.  What is unexpected, however, is that annualized inflation wasn’t that much lower than 8% during the first two years of three other presidencies:  Reagan (6.0%), Nixon (5.7%) and Bush41 (5.4%).  Total inflation averaged 2.7% p.a. in the first two years of the Clinton presidency.

Comparisons of core CPI inflation put Obama (1.2% per annum) close to Kennedy’s 1.1% pace.  Bush43 had a 2.2% pace, and Clinton’s annualized rate was 2.9%.  The other four presidencies had core inflation rates of 5% or more: Carter (7.5%), Reagan (7.0%), Nixon (6.2%) and Bush 41 (5.4%).

Unemployment:  Among these eight presidencies, the jobless rate midway through their first term had declined in only three instances: by 1.7 percentage points (ppts) to 5.6% under Clinton, by 1.6 ppts to 5.9% under Carter, and by 0.9 ppts to 5.7% with Kennedy.  Obama’s 1.6 ppt increase to 9.4% was matched by Bush43, who inherited a 4.2% jobless rate that rose to 5.8% by January 2003.  The increases were larger than 1.6 ppts in the cases of Reagan (2.9 ppts to 10.4%) and Nixon (2.5 ppts to 5.9%).  During the first two years of the Bush41 presidency, unemployment went up a full percentage point to 6.4%.

Jobs Growth:   Employment fell 1.1% per annum in the first two years of Reagan’s stewardship, identical to the net drop under Obama, and Bush43’s presidency saw a 0.8% per annum net loss of workers.  The fastest expansion by far occurred under Carter, believe it or not, and that was an astonishing 4.9% advance over his first two years.  Jobs increased by 3.0% p.a. in the first two years of the Clinton presidency and by 2.2% p.a. under Kennedy.  Considerably weaker, but still positive, advances in employment occurred with Nixon (1.0% p.a.) and Bush41 (0.9% p.a.).

Another way to assess Obama’s first two years for each of these criteria is to compare his record against the per annum pace of the last 50 years, starting with the inaugural of John Kennedy.  Real GDP growth these past two years has been only roughly half as strong as the 3.2% per annum long-term trend.  Inflation has been much better than the 50-year averages of 4.1% for total CPI and 4.0% for the core index.  On jobs, Obama is 2.9 percentage points below the 1.8% per annum long-term rate of increase, but five other presidencies also get terrible grades on this measure.

The biggest surprise from this study is that the Carter years appear much better than I or others remember.  Jobs growth in 1977-8 was spectacular, and GDP growth of 2.9% was just 0.3 percentage points less than the 50-year average pace.  He took over a 7.5% unemployment rate from Ford and transformed such into 5.9% by January 1979.  His blemish, of course, was the loss of price stability.  But the first two years of the Nixon, Reagan, and Bush41 presidencies were not a whole lot better than Carter from a price stability standpoint.  The data suggest that Carter inherited inflationary pressures and failed to fix a festering problem that got worse under him.  Inflation wasn’t slain in a day, month or year by either Reagan or Volcker.  It took a long time to cleanse the tendency completely out of the system.  As late as 1989-90, total CPI rose 5.4% per annum, and core went up 5.0% a year. 

Much like Carter, Obama took power at a bad time.  And like Carter, Obama didn’t click immediately with the public.  They didn’t inspire hope in the way that Reagan managed to do.  In politics, image often trumps the facts.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.



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