Winston Churchill quipped that “a lie gets halfway around the world before the truth has a chance to get its pants on.” He could easily have been talking about the state of economic forecasting and reporting in the US today.
On Wednesday, the Commerce Department again revised its estimate of 1st Quarter GDP. Instead of the anemic 01.% growth initially reported, the economy shrank by 2.9% in the first 3 months of the year. The 3-percentage point downgrade was the largest revision in US history. The economic contraction was the biggest since Obama first took office.
For the last five years, President Obama’s defenders have trumpeted even the smallest data-points as signs of an impending “breakout” in the economy. Just last year, weeks before the massive drop in 1st Quarter GDP, Business Insider found “another sign of economic recovery” in the amount of miles Americans were driving their cars.
The fact is, with a real GDP of just over $15 trillion, the US economy has a lot of moving parts. One can always find both good and bad news if one is willing to tease the data enough. If you torture statistics long enough, the old adage goes, they will confess to anything. Focusing on micro-data about the economy may fill a news cycle, but it obscures the larger picture of the economy.
The liberal website Vox assured readers that the dismal 1st Quarter economic news was no reason to “panic.” There chief reason for economic calm was that jobs continued to grow at the start of the year, averaging an increase of 189k jobs in the first three months. This growth, however, is at or below the growth in the US adult population. A job market keeping pace with population growth, in a sense, is expanding, but not really in a meaningful way for most Americans.
Setting aside economic diversions, a picture emerges of a US economy that is stalled. GDP shrank by $73 billion in the 1st Quarter. Keep in mind, the Federal Reserve “created” and added more than $120 billion into the markets at this time.
Since Obama took office, real GDP, i.e. adjusted for inflation, has grown $1.4 trillion. On its own, this growth is less than half the average growth during previous economic “recoveries.” It is almost a third less than the growth during the Reagan economic recovery. If Obama’s “recovery” had mirrored that under Reagan, GDP would be more than $2 trillion higher than it is today.
Even this bleak picture obscures the weakness in the economy. After Obama took office, the government pumped $900 billion in stimulus into the economy. The Federal Reserve has injected $2 trillion into the markets. Real growth in the economy, in other words, has been far less than the government’s fiscal and monetary stimulus. Eventually, this stimulus will have to end. If the economy is stalling with the stimulus, what happens when the stimulus is removed?