Economic recovery may come too late for Obama
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