Currency Thoughts

Fact Check: Has U.S. Employment and GDP Growth Been Abnormally Poor Under Obama?

October 23, 2012

The U.S. economy had experienced recession already for thirteen months when Barack Obama became the 44th U.S. president on January 20, 2009, and the rate of contraction was then in its most virulent stage at 8.9% in the final three months of 2008 and 5.2% in the first quarter of 2009.  With such a self-feeding dynamic, no action by the government or private sector was going to transform that situation into positive economic growth immediately.  As things turned out, the recovery of GDP materialized by the third quarter of 2009, sooner than almost every pundit was imagining when Bush43 stepped down.  In the labor market, which tends to lag GDP, the unemployment rate peaked at 10.0% in October 2009, and jobs stopped shrinking in February 2010.  After the prior recession that ended in November 2011, for example, it took 19 months for the jobless rate to crest and 21 months for employment to bottom out.

Since key labor market reversals occurred sooner rather than later after the Great Recession, it seems reasonable to gauge the U.S. economic performance while Obama was president by comparing trends since the onset of recovery, which occurred just under six months into his first term.  One can then compare these results to two control groups.  The first of these would be the U.S. economic performance prior to the Great Recession, and the other sensible point of reference is the economic performance of other well-developed economies since mid-2009.

U.S. real GDP expanded 2.2% per year over the three years between the second quarter of 2009 and the second quarter of this year.  That pace was very slightly below the GDP growth rate of 2.4% per annum during the seven years from end-2000 until end-2007.  U.S. economic growth was considerably better in the second half of the 20th century, but my point is that a new and lower normal had been well established several years prior to the Great Recession.  The 2.2% rate of U.S. growth over the last three years was considerably better than what the euro area experienced, which was a pace of 1.0% per annum, and U.S. GDP also expanded slightly more quickly than Japanese growth of 1.9% per year.

Governor Romney faults President Obama for missing his goal of reducing U.S. unemployment to 5.4% within his first term.  At first glance, one has to wonder what Obama was thinking when he made such a wild forecast, since he inherited a 9.8% jobless rate in January 2009.  However, the forecast was made in 2008 when he was campaigning for office, and in that year, unemployment was as low as 4.9% in February and only moved above 5.4% in June.  Unemployment continued climbing after Obama took office, rising from 7.8% to 10.0% in October 2009.  It then took until last month to unwind the 2.2 percentage point jump associated with the nasty recession that was inherited.

The labor markets of Euroland has performed much worse than America’s. In the euro area, the jobless rate has climbed from 8.5% in January 2009 to 11.4% now.  Japanese unemployment, which structurally runs lower for any given rate of GDP growth than one finds in other developed economies, was at 4.1% in January 2009 and is at 4.2% now.  Like the United States, the starting and current observations are essentially the same.

What can be said about the 1.3% per annum growth of U.S. jobs during the 31 months since such bottomed in February 2010?  That’s a far better pace than awful but still disappointing in a U.S. historical perspective.  To be sure, it’s marginally greater than twice the 0.6% per annum net growth of U.S. jobs during the seven years between the end of 2000 and the end of December 2007.  However, its weaker than the 2.1% per year advance over the 50 years between end-1950 and end-2000. 

Governor Romney’s promise to grow employment by twelve million workers during his first four-year term essentially reflects a return to the twentieth century norm, since a gain of 12 million equates to an employment growth rate of 2.2%.  Such a pace looks in fact plausible whether or not the Governor’s five-point plan is implemented.  Research by Carmen Reinhart and Ken Rogoff documents that recessions in the United States and many other countries that were caused by financial market busts produced more slowly developing subsequent recoveries than did economic downturns induced by tighter macroeconomic policies to contain inflation.  As the United States puts the Great Recession further back in its rearview mirror, one can hope that both GDP and the labor market will start to show a little more pep in a process of gradual normalization.

To sum up, U.S. growth in jobs and GDP has succumbed to headwinds felt by many other economies as well.  After the Great Recession, the United States has actually coped discernibly better than Europe or Japan.  That will be little comfort to President Obama and his supporters if he becomes the latest in a series of world leaders thrown out of office by frustrated voters hungering for the good old days.  We see from the above data that the economic headwinds predate the Great Recession by several years, suggesting it may be misplaced to fix blame on politicians and bureaucrats.  One original sin lies with excessive household debt, and Silicon Valley is another transforming force that bears some significant responsibility to the extent that inventive high-tech products hasten the redistribution of economic power between developed and developing economies. 

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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This entry was posted on Tuesday, October 23rd, 2012 at 11:52 am and is filed under Larry's Blog. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.