The gross domestic product, estimated to be growing at a mere 0.1 percent in the first quarter because of the harsh winter, has actually done even worse, contracting by 1 percent.
Conservative economists whom I checked with today were careful to emphasize that the downturn is in all likelihood weather-related and a function of inventories. Kevin Hassett of the American Enterprise Institute told me, “Inventories were the biggest negative, and this highlights a subtle change in how the economy works. Because of just-in-time inventory management, the economy is much more sensitive to bad weather than it used to be. Inventories are not sitting on shelves, they are in trucks. If the trucks get stuck, so does the economy.”
So let’s not over-interpret one month. That said, there is a serious and ongoing problem with the Obama economy.
Even if it is temporary, the downturn reflects a pattern seen repeatedly over the past five years. The worst recession since the Great Depression ended in June 2009, but the economic recovery has struggled to gain traction. Job growth has been largely lackluster even as the unemployment rate has slowly fallen. Sluggish wage growth has restrained consumer spending. The housing market surged in 2012 and into 2013, but has slowed over the past year as mortgage rates have climbed and prices have surged.
Many economists had hoped 2014 would be a breakout year for growth, encouraged by an economy that grew at a 3.4% pace in the second half of 2013. Those hopes have been deferred—if not yet dashed—by the latest stretch of weakness.
The public doesn’t think we are in recovery, because the economy isn’t performing as it did in previous recoveries, when growth was robust and hundreds of thousands of jobs were created each month. President Obama will no doubt claim it’s because they haven’t spent enough money, but that old saw isn’t fooling many people. Between a high corporate tax rate that discourages investment in the United States, Obamacare (effectively taxing labor and directly taxing medical device companies), an out-of-control Environmental Protection Agency, restrictions on domestic energy development and long-term debt hanging over us, this shouldn’t be a surprise.
As Doug Holtz-Eakin of the American Action Network points out, “Without weather problems, we’ve been grinding along at 2-2.5 percent. Unacceptably poor. This just disguises that because of the weather issues. If we moved to structural reforms — entitlements, tax, regulatory, immigration, education — we could raise the long-run growth rate by up to 0.5 percentage points and throw in some MUCH faster quarters in the near term.”
To change any one of these drags in the economy, let alone all of them, is for the foreseeable future virtually impossible. The president is spending the year throwing one bone after another to his yelping base (no Keystone XL pipeline) or simply wasting time by generating anger on the left (e.g. the war on women). And when the president is being rocked by scandal after scandal there isn’t that much time or oxygen in the room to focus on a coherent pro-growth plan that could gain bipartisan support. He frankly seems more worried about getting rotten reviews on foreign policy (hence the defensive and widely ridiculed speech yesterday) than about the impact of his policies on economic growth.
Maybe after the midterms the president will be in a more constructive mood. Right now, however, his legacy is looking as though it will be defined by scandals, economic ennui and foreign policy debacles.