Economic recovery may come too late for Obama

By Nicholas Wapshott
October 26, 2012

The green shoots of recovery are growing a little taller. Newly released gross domestic product estimates   measuring consumer and government spending, investments and net exports   show the economy growing at 2 percent in the third quarter, up from 1.3 percent in the second. In normal times, this would be nothing to get excited about; average GDP growth between 1947 and 2012 was 3.25 percent. But we are recovering from a systemic financial crisis, not a routine dip of the business cycle, and in such cases recovery is noticeably more sluggish. Don’t believe Cassandras who suggest the good news is a chimera. We are in  an “L”-shaped recovery rather than a “V”-shaped one, and the fact that GDP is steadily rising is in itself encouraging.

What effect will this figure have on the election? A single statistic, like a single opinion poll, is just a snapshot. As with polls, to understand what is going on, you have to look at the moving pictures rather than a single frame. And growth figures, like polls, are open to revision. There is a predictable margin of error. Within a month the 2 percent GDP estimate will be revised; historically it has moved within a range of 0.5 percent up or down. So we may be looking at GDP growth of 2.5 percent or 1.5 percent, but we won’t know which before Nov. 6. With the general election near, any evidence, however small, is going to be closely scrutinized. On its own, the 2 percent figure does not tell us much, so we should not be distracted by those who make big claims about it one way or the other. What is significant is that it is part of a growing trend suggesting that the economy is slowly emerging from its slumber.

Take housing. The latest figures, for September, show a surge in new homes, up 15 percent in a single month, the fastest growth in four years. As the current financial crisis was founded on a housing bubble, the fact that builders are speeding up their housing starts suggests the economy in general is steadily recovering. The housing figures are good news for employment, too. For every new house built, at least three jobs are created. Sales of new homes are also on the rise, and inventory has fallen “to the lowest level on record.

House prices are also increasing, suggesting not only that the glut in inventory is coming to an end after six years – the cheap rates and inappropriate lending that fueled the housing bubble encouraged too many homes to be built in the wrong places – but that the number of homeowners underwater is diminishing. Relief from the worry of owing more to your mortgage company than your house is worth encourages personal borrowing and spending, which increases demand that creates jobs.

More can be done to bolster house buying, not least encouraging banks and mortgage companies to lend more freely by clarifying the federal government regulations about new lending and refinancing existing mortgages. Fixing that bottleneck should be a priority for whoever wins on Nov. 6.

Another sign that the worst is over: Consumer confidence is riding high. The latest survey of consumers by Reuters shows Americans more confident about their economic prospects than at any time in the past five years. Similarly, consumers think their personal finances are in better shape than at any time in five years. They are less anxious about losing their jobs and more optimistic about finding new ones. This optimism is confirmed by a recent Wall Street Journal poll.

The latest jobs figures also look better, leaving the biggest black cloud on the horizon to be the “fiscal cliff” – the automatic hike in taxes and deep cuts in public spending triggered if Congress does not act — which is deterring business leaders from taking decisions to invest in new plants and new products that create jobs. Assuming that the first task of whoever wins on Nov. 6 is to persuade Congress to come to the table and compromise – a big ask if Barack Obama wins and the House remains Republican – that inhibition to growth will be removed.

With the recovery making slow but steady progress, Obama must wish he had one more year before the election so he could enjoy the benefit of a country on the mend. The heavy lifting is done and whoever is president for the next four years can enjoy an economy in increasingly good shape. Unless, of course, they start experimenting with deep cuts in public spending. As we have seen in Britain and in the euro zone, sharp public-sector cuts and general austerity lead directly to recession. But in this country, economic data is looking better than expected, which is why the nonpartisan nerds who compile the stats are coming in for abuse from the president’s opponents, who think the timing of the better economic news is too good to be true.

The presidential race is a steeplechase, run over jumps, not on the flat, so each statistical hurdle offers a chance for the president to be unseated and for Mitt Romney to gallop into a clear lead. Obama has sailed over the penultimate fence, the GDP hurdle, but has one last big jump to traverse, the October jobs figures, to be released on Friday, Nov.2, just four days before polling day. If the figures are OK and he stays in the saddle, he will still be in a photo-finish with Romney. But after leading the nation through four long years of economic misery, he may consider that in itself to be something of a triumph.

Nicholas Wapshott’s Keynes Hayek: The Clash That Defined Modern Economics has just been published in paperback by W. W. Norton. Read extracts here.

PHOTO: A worker prepares a new housing lot at a construction site in Alexandria, Virginia October 17, 2012.  REUTERS/Kevin Lamarque

6 comments

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Houses are very much like cars. They are manufactured. There are good ones and bad ones. They are expensive or more expensive. And they can be overproduced.

Without the demand from a stable and secure middle class, there is no housing industry except for overheated Government pumping. This growth will cause a further decline in the value of existing houses, further sinking the middle class, which will cause further economic decline.

Posted by usagadfly | Report as abusive

With the EU heading down and CHina and USA sure to follow, the author promulgating the very idea that recovery is coming is nonsensical. I stopped reading after that. Why not just wear an Obama campaign button and instead if propaganda is the aim and factual reporting is not?

Posted by advocatusdiabol | Report as abusive

Nice try, but all the recent improvements in GDP have been due solely to increased government spending.

I wonder if that is related somehow to getting their “boss” reelected.

Naah! The government wouldn’t deliberately fudge figures — or would they?

By the way, your choice of “L” to signify the type of recovery we are in presently is somewhat poor, since — if you notice — the bottom of the letter “L” is flat and one would naturally assume it would extend that way permanently under the present “recovery”.

Posted by Gordon2352 | Report as abusive

You can’t mend an economy that operates amidst failure to force reciprocation and global political uncertainty!

Posted by donee | Report as abusive

It’s dangerous to extrapolate into another four years, based on one month’s data (which have been seasonally adjusted, and are subject to government borrowing/spending policy which is presently unsustainable). In order to see past the headline numbers, we will need to dig a little deeper.

Americans must ask themselves:

• IF the President knew what he was doing with the economy, what would the American economy have looked like over the last four years? (Take into account the economic meltdown from Bush II’s policies, and the real difficulty of getting out of the resulting economic strait-jacket. Is it fair to expect a competent president to fix that in four years?)

• Is this what we are seeing? The fruits of competent economic policy? Would a genuine recovery have looked different from what we see now? (Take into account all economic data: for example, GDP growth must be taken in context of the budget deficit/surplus, and in context of population growth.) For one starting point, take a look at these charts:
http://slyman.org/m_politics/US-Economic -Indicators-graphs-1950-2011-wide.png
Are we witnessing the beginnings of a genuine, sustainable recovery from the economic policies of the Bush II administration, led by a president with a vision who is setting an agenda for another American century?
OR, are we witnessing an administration that has spent the last four years papering over the cracks, kicking the real issues into the long grass of the next administration’s agenda; hoping just to get past the next set of elections before handing the problems back to the other party gift-wrapped in economic numbers that have been generated by continued deficit spending whilst a president who was out of his depth was treading water?

• Does re-election of the current president, or a change of administration, offer the best chance for the real underlying economic problems of North America to be solved near-term, medium-term or long-term?

~~~

There may be more than one way to answer these questions.

When considering these points, it’s interesting to re-read the history of the Great Depression and the contemporary political era.
1.Is four years long enough to fix a depressed economy?
2.Should we praise Franklin D. Roosevelt’s New Deal as a roaring success whilst criticizing Herbert Hoover as an abject failure?
— If the answer to Q2 is YES, then the answer to Q1 is surely YES also…

Posted by matthewslyman | Report as abusive

Continuing massive immigration into the United States is the only thing driving up all the numbers cited in this article.

There are giant cities all over the world, not just China, brimming with impoverished people and wealthy people, both. All of them, both the impoverished foreigner and the rich foreigner, are being allowed free access to enter America, and take what they can. The only precedent would be the fall of Rome.

Impoverished immigrants, accustomed to living in slums of giant foreign cities, or the huts foreign farming villages, are flooding into America, faster and faster, willing to work for any wage, and thus driving down American wages.

Of course the official statistics then show that employment has grown. What the statistics don’t tell you is that those jobs went to immigrants, while wage rates for Americans went further down, and many Americans lost their jobs to the immigrants willing to work for almost nothing.

Never mentioned in public is the fact that large-scale immigration into the US from China, Mexico, India, Indonesia, and every impoverished country, has sharply driven up American apartment rents, adding more and more distress to American middle class apartment renters.

But the influx of poor immigrants is only part of the story. The wealthy classes from the same foreign countries (literally all foreign countries, including China) are bringing their ill-begotten money to America and buying up American real estate at an unprecedented rate.

The increase in house prices cited by this article was not caused by Americans being better off; it was caused by more and more wealthy foreigners buying more and more of the housing stock of America, from Americans who can’t pay their monthly bills anymore. It was caused by poorer immigrants moving 10 people into a small house, and paying for it that way.

Millions of foreigners — Chinese and others — are buying not just Manhattan and Miami trophy condominiums, but small properties on, literally, almost every corner in every city and town in America.

This article simply parrots the official propaganda.

How can an economist write about jobs and housing in America today without even mentioning the giant influx of immigrants that is ever accelerating, every hour, as we speak, and overwhelming all other economic factors?

Posted by AdamSmith | Report as abusive