On Friday, the Commerce Department reported that consumer spending unexpectedly fell in April. On Thursday, the agency reported a slight downward revision in its initial estimate of 1st Quarter GDP growth, and noted a dramatic drop in corporate profits. Amid this backdrop of disappointing news, on Friday, Politico trumpeted that the “rising economy” would alter the 2014 midterm elections. While littered with caveats, the feature article predicts a newly robust economy will lift Democrat fortunes next year.
DC’s skyline is scattered with construction cranes, so I get that the economy looks different from here. Joblessness in the DC-metro area is an enviable 5%, an order of magnitude better than many parts of the country. Politico’s lead story by economics reporter Ben White, however, is still a stretch, even by DC standards.
“The fact is the economy is probably going to look and feel very good next year,” said Ian Shepherdson of Pantheon Macroeconomics. “The most likely outlook for Obama and the Democrats is pretty good growth and employment rising strongly. If you step back and look at it, it’s a hugely favorable scenario for them.”
White’s piece cherry-picks some recent economic news, without delving too far into the details. Yes, the stock market has been up this year, but company earnings have been tepid and top-line revenue numbers have declined. The Fed is currently spending over $80 billion a month buying up assets and securities. The Fed itself has said that inevitably will have to end and it is uncertain whether the market rally can be sustained when the central bank pulls back.
That said, however, the market is not the economy.
White, and many on the left, are crowing about a recent upturn in housing prices. As Christopher Whalen points out, however, this appreciation is unsustainable and largely due to institutional investors pouring into the market to buy up potential rental properties. It is just the latest development in investors’ mad rush to find any kind of yield, anywhere.
Earnings are flat and the job market is weak. Record numbers of Americans are unemployed or out of the workforce, on food stamps or earning disability payments. American households have only recovered 45% of the $16 Trillion in wealth lost during the recession.
In a few months, the individual and employer health care mandates of ObamaCare take effect. While their precise impact is arguable, it is unlikely to lead to a boost of hiring activity.
Most economists are revising downward their forecasts for 2nd Quarter GDP growth to 1.5-2%. JP Morgan announced on Friday that even that estimate seems now overly optimistic. Even reaching that level, however, is not likely to spark the job growth the economy needs to really grow.
White’s article is an admirable piece of political spin. Looking at current economic news and conjecturing about the political implications of a “rising economy,” though, is a fantasy wrapped in a fable, inside a myth.