James Pethokoukis

Politics and policy from inside Washington

More evidence U.S. economy approaching stall

Aug 2, 2011 11:33 UTC

The U.S. economy doesn’t like to hover. If it isn’t expanding at a 2 percent or higher annual pace, it risks slipping into recession. As I mentioned in a post last week:

Research from the Federal Reserve finds that that since 1947, when two-quarter annualized real GDP growth falls below 2 percent, recession follows within a year 48 percent of the time. (And when year-over-year real GDP growth falls below 2 percent, recession follows within a year 70 percent of the time.

But rising unemployment can also be a warning signal. Goldman Sachs, for instance, has a “three-tenths rule of thumb” for the unemployment rate:

Technically, the “rule” is as follows: if the three-month average of the unrounded unemployment rate increases by more than three-tenths of a percentage point (35 basis points to be exact) from a trough, the economy has either entered recession already, or will do so within six months. The intuition behind this statistical regularity is that if the labor market stalls for more than a short period, a vicious cycle of weaker income growth, weaker spending and weaker hiring typically results. An important exception is in the early phase of economic recovery, when the unemployment rate often continues to drift higher for several months.

Currently, the three-month average rate is 9.07%, up from a recent trough of 8.90% in April. The unemployment rate would need to increase to 9.3% in July and stay there in August to trip the 35-basis point threshold; our forecast for Friday’s July labor market report is that the unemployment rate will remain steady at 9.2%.

So all eyes on Friday’s jobs report. Certainly some forecasters think the economy will be considerably stronger in the second half of this year. But from a political perspective,  the 2012 economic landscape looks like it will be nowhere near what Team Obama was expecting or hoping for: 4 percent GDP growth and sub-8 percent unemployment




Exports are doing well, though. I saw in one article: I read that exports were clocking along at a record level.
The company where my husband is employed can’t keep up
’cause of all the exporting orders for durables.

YET, I read that the trade deficit was widening,

And then there is this inflation “roof” going to collapse
in on Bernanke. Some of the “shingles” they want, of course, to mask our spending addiction, but these wild swings of the pendulum aren’t good timings for anyone.

Remember the fears of the double dip immediately after
the crash? Well, I think it’ll finally hit this time.

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Panic at the White House? Gloomy Goldman Sachs sees high unemployment, possible recession

Jul 16, 2011 12:22 UTC

Last night in a new report, Democrat-friendly Goldman Sachs dropped an economic bomb on President Obama’s chances for reelection (bold is mine):

Following another week of weak economic data, we have cut our estimates for real GDP growth in the second and third quarter of 2011 to 1.5% and 2.5%, respectively, from 2% and 3.25%. Our forecasts for Q4 and 2012 are under review, but even excluding any further changes we now expect the unemployment rate to come down only modestly to 8¾% at the end of 2012.

The main reason for the downgrade is that the high-frequency information on overall economic activity has continued to fall substantially short of our expectations. … Some of this weakness is undoubtedly related to the disruptions to the supply chain—specifically in the auto sector—following the East Japan earthquake. By our estimates, this disruption has subtracted around ½ percentage point from second-quarter GDP growth. We expect this hit to reverse fully in the next couple of months, and this could add ½ point to third-quarter GDP growth. Moreover, some of the hit from higher energy costs is probably also temporary, as crude prices are down on net over the past three months. But the slowdown of recent months goes well beyond what can be explained with these temporary effects. … final demand growth has slowed to a pace that is typically only seen in recessions. .. Moreover, if the economy returns to recession—not our forecast, but clearly a possibility given the recent numbers …

Alarms bells must be ringing all over Obamaland today. Unemployment on Election Day about where it is right now? Sputtering — if not stalling — economic growth? To many Americans that would sound like the car is back in the ditch — if it was ever out. Maybe Goldman is wrong, but economists across Wall Street have been growing more bearish.

And recall that back in August of 2009, the White House — after having a half year to view the economy and its $800 billion stimulus response — made an astoundingly optimistic forecast. Starting in 2011, with Obamanomics fully in gear and the recession over, growth would take off. GDP would rise 4.3 percent in 2011, followed by … 4.3 percent growth in 2012 and 2013, too!  And 2014? Another year of 4.0 percent growth. Off to the races, America.

Even in its forecast earlier this year, Team Obama said it was looking for 3.5 percent GDP growth in 2012, followed by 4.4 percent in 2013,  4.3 percent in 2014.

Goldman Sachs doesn’t have to tell you things are bad. I don’t have to tell you things are bad. Everybody knows things are bad. Unemployment is at 9.2 percent (11.4 percent if the official labor force hadn’t collapsed since 2008 and 16.2 percent if you include discouraged and underemployed workers.)  Moreover, the economy grew at just 1.9 percent in the first quarter of this year and may have grown less than 2 percent in the second. Wages and income are going nowhere fast.

When will the White House signal a change of economic direction? Will cutting tax rates and regulation ever make it on the agenda? That may be the only way Obama can win another term. And time is running short.



Oddly, disliking what Obama and Obamanomics have done to the country doesn’t make you:

unpatriotic (if you were a real patriot you’d just nod and say yes to anything the administration wants to do)
Tea Party

It just makes you intelligent. Welcome to the disenfranchised.

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Americans aren’t eating the dog food

Jun 28, 2011 14:47 UTC

A few data points, two from today and one from last week:

–  Consumer confidence fell in June to the lowest point since November 2010 on concerns about the slack labor market and sputtering recovery, according to a Conference Board report released on Tuesday. The Conference Board, a private-sector industry group, said its index of consumer attitudes fell to 58.5 in June from a revised 61.7 in May. Something more like 90 is what you want to see with a healthy economy.

– “Only 37 percent of registered voters approve of [President Obama's]handling of the economy, his lowest rating ever, according to a new McClatchy-Marist poll. …  Overall, 45 percent said that they approved of the job the president is doing, while 47 percent disapproved, a range that’s held relatively steady since late 2009.”

– And this from an AP poll:

For the first time this year, less than 50 percent of respondents to an Associated Press-GfK poll say Obama deserves re-election. The new poll shows a virtual split of 48-47 in favor, raising a new hurdle for the president as economic concerns strip away the gloss he briefly gained in May after the death of Osama bin Laden. What’s more, four out of five now believe the economy is in poor shape, with 36 percent calling it “very poor,” a new high in AP-GfK polling.

At the same time, Wall Street and the Federal Reserve continue to downgrade their economic expectations.  As I wrote yesterday:

The economy grew at just a 1.9 percent pace in the first quarter, and many economists now think it might grow just 2.0 percent in the second quarter – or even less. This should be a red flag to Washington. New research from the Federal Reserve finds that that since 1947, when two-quarter annualized real GDP growth falls below 2 percent, recession follows within a year 48 percent of the time.

Which GOP 2012er has the best jobs record?

Jun 21, 2011 12:22 UTC

Katrina Trinko at National Review Online puts them through their paces:

According to a National Review Online analysis of seasonally adjusted employment data (looking at the total number of those employed) from the Bureau of Labor website, Gary Johnson has the best record of the official candidates, with a job-growth rate of 11.6 percent during his tenure. … Among the crowd who governed primarily during the 2000s, Huntsman has the best record. During his 2005 to 2009 tenure as governor of Utah, the number of jobs grew by 5.9 percent.

Mitt Romney and Tim Pawlenty have much weaker records. Romney, who governed Massachusetts from 2003 to 2007, had an overall job-growth rate of 1.6 percent. During Pawlenty’s time as governor of Minnesota (2003 to 2011), the number of jobs grew by an anemic 0.5 percent.

Rick Perry, who is flirting with a presidential run but has not yet announced his candidacy, had an overall job-growth rate of 12.5 percent from January 2001 (he was inaugurated as governor of Texas in late December 2000) to April of this year, the most recent month for which finalized numbers were available.

Of course, some of these comparisons are apples to oranges; Pawlenty, Huntsman, and Perry, for instance, all were governors during the recession, while Romney and Johnson were not. State population changes could also play a role in determining whether a state’s employment numbers surge or decline.

So, what happens if you compare the governors over the same time period? Well, looking at Romney’s tenure from January 2003 to January 2007 shows that he achieved growth of 1.6 percent. Pawlenty had the same overall rate (1.6 percent) in Minnesota. In Texas, Perry achieved 7.2 percent growth.

During Huntsman’s tenure, January 2005 to August 2009, Utah had the best overall job-growth rate of any state in the nation. In that same time frame, Perry’s job-growth rate was 4.9 percent. Pawlenty’s job-growth rate was negative: The number of jobs in Minnesota decreased by 1.8 percent.

During Pawlenty’s tenure, January 2003 to January 2011, the overall job-growth rate was 0.5 percent. In that period, Perry (the only other governor to fully overlap with the two-term Pawlenty) hiked the number of jobs by 7.2 percent.





Gary Johnson is a breath of fresh air compared to the other republican candidates. I believe Governor Gary Johnson is Obamas biggest threat. Its really hard for Obummers re-election team to paint a pro-choice, pro-gay rights, anti war GOP candidate who wants to legalize marijuana as a right wing extremist. His socially liberal stances will be attractive to democrat and independent voters. Not to mention he was a very successful two term(that’s one more term than mitt romney) republican Governor in new mexico a state that is 2 to 1 democrat. He left office with a billion dollar surplus and was arguably the most fiscally conservative governor ever. He is a true Statesman and practices good stewardship of your tax dollars.

He also will not engage in mud slinging or name calling. He ran two campaigns in NM where he never mentioned his opponent. He will stick to the issues and not try to blame obama. I met Gary Johnson twice last year in my state of MO.. Once when he spoke at UMKC and another event he spoke at Missouri Southern State University. in Joplin Mo. He took the time to answer all my questions and sincerely listened to my concerns.. He is obviously working harder than the other candidates! For this he has earned my vote and support! If you have not heard of Governor Gary Johnson, Google him!

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Huntsman rides hard into the 2012 race

Jun 17, 2011 16:04 UTC

When Jon Huntsman, America’s man in Beijing until recently, joins the U.S. presidential race next week, he won’t be coming alone. His entry will add a China spin to the economic issues under debate by the current Republican field. That alone should make his candidacy one worth watching.

No doubt some of Huntsman’s soon-to-be rivals will attempt to make hay that his previous employer was the fellow whose Oval Office they’re hoping to occupy. But the former Utah governor would be wise to use his recent ambassadorial posting to turn the conversation to the Middle Kingdom. America’s primary economic and military rival merited only a single passing mention during the New Hampshire GOP presidential debate earlier this week. That shouldn’t happen again.

Huntsman’s overseas gigs — he was briefly ambassador to Singapore in the early 1990s — give him a unique perspective on the economic challenges and opportunities that Asia’s rise presents to America. Despite current angst about China’s growing economic might, Huntsman knows firsthand the simplicity of that view. China is a desperately poor nation — its per capita GDP is lower than Jamaica’s — that still needs to show it can innovate as well as imitate. It is not a nation of Asian supermen ready to dominate the 21st century.

Moreover, in China’s need to rebalance its economy toward more consumption, Huntsman has seen the flip side of America’s need to reorient toward more saving and less debt. (And how entrenched political interests make such rebalancing efforts difficult.) He’s already hinted at supporting cuts to defense spending and eliminating economically inefficient tax breaks — while also lowering tax rates. And Huntsman’s call for America to increase its energy efficiency echoes China’s efforts to do the same.

Huntsman is also, of course,  sure to talk about his impressive record as the Beehive state’s governor. He was overwhelmingly reelected in 2008, with the nonpartisan Pew Center calling Utah one of the three best-managed in the nation. True, for now, most Americans know as much about Huntsman as they do China — not much. They would be wise to study up on both.



Gary Johnson created far more jobs than Huntsman did(11.5% vs 5% job growth). He also left Governorship as a more popular man. Still, he never got this kind of gratuitous write up. Are you owned by CNN? How do you feel about Ron Paul?

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2011 ‘Recovery Summer’ looking like a disappointing rerun of 2010

Jun 16, 2011 16:13 UTC

Those “bumps in the road” are starting to come fast and furious. The mix of disappointing U.S. economic reports and fear of a Greek default must be weighing heavily right now on the minds of the Obama 2012 re-election team. We are now looking at another quarter of around 2% GDP growth, which will do little to lower unemployment.  A few selections from my email in-box:

–  Michael Dard, MKM Partners: “With Greece appearing to be on a fast track to default, and Ireland and Portugal likely not far behind, the stench of a “credit event” is once again in the air.”

– Nicholas Tenev, Barclays Capital: The Philadelphia Fed manufacturing index sank to -7.7 in June from 3.9 in May, well below our (8.0) and consensus (7.0) forecasts and the first negative reading since September.  … While respondents continue to report small increases in shipments and employment, the overall weakness of this report corroborates the Empire State manufacturing survey’s discouraging tone, signaling that the manufacturing slowdown worsened in June.:

– RDQ Economics: “The Philadelphia Fed’s general business conditions index was much weaker than forecasts …  It is now three months since the Japanese quake and tsunami and it is hard to attribute a further weakening in manufacturing in June to this event. However, this then begs the question as to why manufacturing appears to be slowing further (and possibly contracting in June). For now, we are letting the data speak for themselves and it looks like the manufacturing sector continued to lose steam in June.”

– Daniel Silver, JPMorgan: “The most recent jobless claims report showed a bit of improvement in the data, but the data still signal weakness in the labor market relative to what was reported throughout most of February, March, and April. Initial claims for the week ending June 11 declined 16,000 to 414,000 from an upward revised figure for the prior week. This decline was a small step in the right direction for the labor market, but claims have now remained above 400,000 for ten straight weeks. “


Everything is very open with a really clear clarification of the issues. It was truly informative. Your website is very helpful. Many thanks for sharing!

Obama 2012 and the May jobs report

Jun 3, 2011 20:26 UTC

I don’t think the terrible May jobs report means the Obama presidency is doomed anymore than I thought the killing of OBL meant re-election was in the bag. But another 18 months of economic muddling through – high unemployment, stagnant wages, dead housing, slow GDP growth – would certainly make the GOP nomination one worth winning. Like REALLY worth winning – let’s put it that way. And the history of economies after bank crises show the “muddling though” scenario is a common one.

But it is also interesting to note that White House economists told me previously that they didn’t think the U.S. economy would fall prey to that trap. No wonder the administration used so much political capital on health and financial reform rather than on job creation in 2009 and 2010. My chats with folks from the White House always showed them to be eternally  optimistic — eternally and overly optimistic is turns out. They were as surprised as anyone that Recovery Summer 2010 was a bust. And Summer 2011 is looking to be about the same. Yet there’s no sign the administration will change course and adopt some common-sense growth policies such as cutting taxes on corporations and capital, slashing regulation and offering a big downpayment on debt reduction.


The lunatics are in charge of asylum here.

The theoreticians living in the White House are working very hard to remake the USA as they think it should be.

They are refusing to accept the widely known economic theory that Government regulations and taxes have direct bearing on the state of economy.

Only a fool would keep driving even after learning that he is going in the wrong direction.

Only a greater fool would believe that we are going in the right direction and it’s just taking little longer.

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2012 might be one deal Romney can’t close

May 13, 2011 16:57 UTC

During his private equity career, Mitt Romney was famous as a supersalesman who could dazzle clients with data. But his PowerPoint mastery may not be enough to make him U.S. president. Thursday’s slide-show defense of the controversial health plan he created as Massachusetts governor likely failed to satisfy conservative critics.

Judged purely as political theater, the hour-long, televised presentation Romney gave at the University of Michigan was impressive. The faltering Republican frontrunner speedily navigated through the healthcare problems facing the Bay State when he took office and how he went about devising a solution. He explained that before his 2004 reforms, almost a half million state residents were uninsured. Now it’s down to 100,000 thanks to the government programs he started, Romney said. And he didn’t need to raise taxes to do it. Few of his 2012 rivals can match his policy knowledge.

Right-wing Republicans didn’t consider Romneycare as a disqualifier when the former Bain Capital chief ran for the party’s nomination back in 2008. But it’s Romney’s bad luck that a key feature of his healthcare plan can also be found in President Barack Obama’s: a requirement all citizens purchase health insurance if they can afford it. A decade ago, some conservatives pushed the idea as a matter of “personal responsibility.” And as smart economics, too. They saw it as a way of stopping a free-rider problem since American emergency rooms will treat whomever walks through their doors.

In the more libertarian Tea Party GOP of 2011, however, the “individual mandate” is considered a grievous breach of personal liberty, whether it applies at the state level or federal. Indeed, the rule’s constitutionally is the heart of legal challenges to Obamacare. And Romney’s continued support for his version has seriously damaged his White House prospects. To conservative activists, it’s about values not economic results. His deluge of numbers, no matter how elegantly displayed, is politically irrelevant.

Romney, well financed and with a crack campaign team behind him, could still be the nominee. Some voters will surely like that he’s sticking to his guns. But if someday Romney gives a PowerPoint on how he failed to win the GOP nod in 2012, there’s no doubt what will be on that first slide.



You may think you’ll see a rather clear and obvious correlation to those rising costs and the time in which the federal gov’t stuck their noses into the healthcare system–but you would have it backwards. Healthcare costs began to rise as the “market” for healthcare was given over to private hospitals, private health insurance companies, a protected pharmaceutical monopoly, and fee-for-service physicians.
Some free market. Racket is more like it.

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Just how beatable is Obama?

May 10, 2011 18:46 UTC

Peter Wehner of Commentary gives the tale of the tape:

We are now in the fifth month of Barack Obama’s third year in office. Unemployment is at 9.0 percent. We’re about 7 million jobs short of where things stood when Obama took office. Economic growth in the first quarter was 1.8 percent. Housing prices have fallen for 57 consecutive months. Only one in three Americans approve of the way Obama is handling the economy, the lowest point since he took office, and nearly eight in 10 American are less optimistic about the economy than they were a few months ago.

David Axelrod is anxious, and he’s right to be. His friend, the president, is caught in a political tractor beam from which few, if any, public officials escape. The only way to likely to overcome it is if the economy shows signs of a strong recovery. That has yet to happen, and one cannot help but think it may never happen, in the Obama presidency. If that ends up being the case—if a year from now the economy is more or less in the same condition as it was two years ago, last year, and what it is now—Obama will be the easiest incumbent to beat since 1980. It’s not impossible for Republicans to lose such an election, but it would be mighty hard.

I would add in how higher gas and food prices are just flat out killing incomes.  But certainly if the next 15 months looks like the past five months, things would look quite promising for the GOP.


Barack Obama is as unbeatable as FDR was. Barack Obama is the greatest president we’ve had since FDR. His health care bill would have been enough to enshrine him in the “greatest presidents” club but when he killed Osama Bin Laden he moved himself into a unique category. No rerpublican stands a chance against Barack Obama. Mark Montgomery NYC, NY boboberg@nyc.rr.com

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The Obama Misery Index

Apr 29, 2011 19:45 UTC

The Misery Index (inflation plus unemployment) through March was 11.48 percent (2.68 percent, 8.8 percent). By comparison, it was 10.52 percent in 1992 when Bill Clinton handily beat George Bush.  (It was nearly 21 percent in 1980 when Ronald Reagan crushed Jimmy Carter.) In fact, it has not been double digits for an entire year since Bush I’s first term. This goes along way in explaining why trust in Obama’s handling of the economy has collapsed. And a new Gallup Poll finds that Americans prefer the GOP budget approach to that of Democrats by 48 percent to 36 percent.

Also keep in mind how rising gas and food prices are eating into incomes. Real disposable income (personal income after taxes and adjusted for inflation) increased only 0.1% after being flat in February.






The Misery Index (inflation plus unemployment) through March was 11.48 percent (2.68 percent, 8.8 percent). By comparison, it was 10.52 percent in 1992 when Bill Clinton handily beat George Bush.


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