Back in August 2010, Treasury Secretary Timothy Geithner wrote the following New York Times op-ed: ” … a review of recent data on the American economy shows that we are on a path back to growth.”
The piece was titled “Welcome to the Recovery.”
And, indeed, the White House thought the economy had shifted into high gear. GDP had expanded at an average pace of 3.8% over the previous three quarters. And the road ahead looked just as promising. In the Economic Report of the President in February of that year, the Obama economic teams predicted the economy would grow 4.3% in 2011, 4.3% in 2012, 4.2% in 2013 and 3.9% in 2014. Welcome to the Boom.
But Geithner and the White House economic team were dead wrong. In the seven quarters since, the U.S. economy has grown at an average annual clip of just 2.1%, including just 1.7% last year.
And right now, 2012 looks like more of the same. GDP expanded at a mere 1.9% pace in the first quarter.
And after a weak retail sales number today, Wall Street economists have been slashing their second-quarter GDP forecasts:
– Goldman Sachs cut its forecast to 1.6% from 1.8%.
– Bank of America/Merrill Lynch cut its forecast to 1.9% from 2.4%.
– Macroeconomic Advisers cut its forecast to 1.8% from 2.0%.
– CIBC World Markets cut its forecast to 2.0% from 2.3%.
– Barclays Capital cut its forecast to 1.8% from 2.1%
– Action Economics cut its forecast to 1.8% from 2.0%.
This analysis from JPMorgan provides a good summary:
After today’s retail sales report our best estimate is that second quarter real GDP is currently tracking a 2.0% annual growth rate, lower than our prior projection of 2.5%. Moreover, we see some downside risk to our new forecast. The largest reason for the downward revision is today’s retail sales report, which lowers our tracking of real consumer spending growth from 2.8% to 2.2%. … In addition, first quarter GDP, which currently prints at 1.9%, looks to be tracking closer to 1.7%. Given the weaker momentum in first half growth, achieving our second half outlook for 2% growth will require more things to go right than wrong, which hasn’t been the case recently.
The current White House forecast of 3% GDP growth this year looks hopelessly out of reach. And growth this anemic is probably not fast enough to generate enough sustained job growth to bring down the unemployment rate.
This is all terrible news for U.S. workers suffering from both high unemployment and flat-to-falling incomes.
It’s also not so hot for the Obama reelection campaign. The unemployment rate might well be higher on Election Day than it was at the start of the year. And when I plug the current numbers into the highly regarded Fair-Yale election forecast model, I get a 52-48 Mitt Romney victory.
No wonder top Democratic strategists are telling the campaign to change its tune: “It is elites who are creating a conventional wisdom that an incumbent president must run on his economic performance – and therefore must convince voters that things are moving in the right direction. They are wrong, and that will fail. … convincing them that things are good enough for those who have found jobs is a fool’s errand. They want to know the plans for making things better in a serious way – not just focused on finishing up the work of the recovery.”
At a speech tomorrow, the president apparently will ask voters to give him more time to fix the economy, acknowledging its weakness but blaming the George W. Bush administration for dealing him a bad hand. But the way things are going—especially if the EU financial crisis worsens—the next Geithner op-ed might be “Welcome to the Recession.” And it will be tough to blame Bush for that.