The Post reports today:
Gross domestic product, the broadest measure of economic activity, rose at a 1.8 percent annual rate in the January-through-March period, down sharply from the 3.1 percent rate in the final quarter of last year. Economists had forecast 2 percent growth.
The weak number shows just how fragile the recovery is. The first-quarter pace is too slow to drive down unemployment. The economy must grow at a 2.5 percent rate just to create enough jobs to accommodate a growing population and more efficient workers. The number of people filing new claims for unemployment insurance benefits rose to a surprising 429,000 last week, the Labor Department said in a separate report. That was the highest rate of new jobless claims since January.
The Fed chairman assures us that this is all “temporary,” but in fact there is no sign of the sort of robust recovery that has followed other recessions. As the Wall Street Journal reports, inflation also shows a marked change: “The GDP report showed a significant pick up in inflation. The Fed’s preferred gauge — the price index for personal consumption expenditures, or PCE, excluding volatile food and energy items — rose an annualized 1.5% in the first quarter. That’s up from the fourth quarter’s 0.4% increase. The Fed Wednesday raised its forecast for the PCE index stripped of food and energy prices to a range of 1.3% to 1.6%.” Oh, but Ben Bernanke is confident any inflation will be transitory.
The combination of low growth, higher unemployment claims and rising inflation is not reassuring. The White House was immediately under fire. Speaker of the House John Boehner (R-Ohio) put out a statement that read, in part:
“While any positive growth is welcome, we are still not seeing the type of economic growth and private-sector job creation needed to help Americans who are struggling across this country. Skyrocketing gas prices continue to batter families and small businesses, and the Obama Administration is actively making the problem worse by blocking more American energy production. . . . In order to promote robust economic growth and private-sector job creation, we also need to remove regulatory obstacles to job growth, end the threat of tax hikes, approve stalled trade agreements that would open new markets, and stop Washington from spending money it doesn’t have, as called for in our House-passed budget.”
Indeed, it’s becoming increasingly difficult for Obama to take “credit” for a recovery. Recent polling reflects the public’s frustration. The Hill reports:
According to the McClatchy-Marist Poll, released Thursday, 57 percent disapprove of the president’s handling of the economy and the remaining 3 percent are unsure how they think.
The 40 percent approval rating marks a record low for the McClatchy-Marist poll. The previous low came in September, when only 41 percent approved of Obama’s handling of the economy.
The growing unease isn’t limited to Republicans. (“The poll found 71 percent of Democrats surveyed approve and 27 percent disapprove. That’s a substantial uptick since January, when 15 percent of Democrats disapproved.”)
I spoke by phone with economist Douglas Holtz-Eakin, president of the American Action Forum, who said that he wasn’t surprised by the overall growth number, and added that the business investment number (1.8%, way down from the 7.7% fourth-quarter increase) was worse and the household spending figure (up 2.7%) was much better than he anticipated. As he put it, “the composition” is worrisome. He says, “The business community has yet to get any momentum.” And as for inflation, he is “confident they’ve set out to create inflation” and will succeed. The danger, he says, is that “the Fed chronically comes late” in tightening monetary policy to stave off inflation.
As for our fiscal policy, Holtz-Eakin argues it is entirely wrong. He speaks approvingly of the budget put out by Rep. Paul Ryan (R-Wis.) (“feasible and pro-growth”) and says we should “keep taxes low — reform would be great” and work on cutting spending and onerous regulation.
Unfortunately, with both monetary and fiscal policy out of whack, it’s had to see how we can achieve more robust growth and job creation any time soon.