The U.S. economy is not doing fine.
Earlier this year, the Obama White House predicted the economy would grow 3% in 2012. Today’s GDP report shows that ain’t going to happen. The Commerce Department said the economy grew at an anemic 1.5% annual rate from April through June, after a revised 2.0% in the first quarter. It now seems likely the economy will be lucky to grow at 2% for the entire year. And that’s after growing just 1.8% last year.
Indeed, research from the Federal Reserve finds that that since 1947, when year-over-year real GDP growth falls below 2%, recession follows within a year 70% of the time. The U.S. economy remains in the Recession Red Zone.
[UPDATE] Here is JPMorgan economist Michael Feroli:
Real GDP expanded at a mere 1.5% annual rate last quarter, and final sales creeped forward at only a 1.2% pace. That pace of growth is fairly pathetic, but close to subdued expectations.
The composition of growth last quarter implies some headaches for the economy in the second half: inventories were accumulated at a $66 billion annual rate, which is a rapid pace and implies that production will remain muted as firms work down excessive stockpiles.
Within the details of final demand, real consumer spending increased at a 1.5% rate, the second slowest quarter since 2009 but a little better than expectations. It appears much of the ‘surprise’ in consumption was due to a jump in utility outlays as weather patterns normalized last quarter.
What does all this mean? For our forecast, we continue to look for 1.5% growth in the third quarter. The strength in inventory accumulation last quarter, however, adds some downside risk to that projection. We suspect the Fed was likewise disappointed by the composition of growth last quarter. For next week, we think it’s a close call but that ultimately the FOMC will not initiate another round of large-scale asset purchases next Wednesday. We continue to believe that they will push back their low rate guidance from late 2014 to mid-2015.
The new data also show just how weak the Obama recovery has been, expanding at an annual average pace of just 2.2% vs. 5.7% for the Reagan recovery.
In addition, the GDP report shows the Obama administration has continually and wildly overestimated the positive impact of its economic policies, including the $800 billion stimulus plan:
– In August of 2009, the White House—after having a half year to view the economy and its $800 billion stimulus response—predicted that GDP would rise 4.3% in 2011, followed by 4.3% growth in 2012 and 2013, too. And 2014? Another year of 4.0% growth.
– In its 2010 forecast, the White House said it was looking for 3.5% GDP growth in 2012, followed by 4.4% in 2013, 4.3% in 2014.
– In its 2011 forecast, the White House predicted 3.1% growth in 2011, 4.0% in 2012 and 4.5% in 2013, 4.2% in 2014.
– In its most recent forecast, the White House predicted 3.0% growth this year and next, and then back to 4.0% after that. The current consensus is for 2013 growth to be a lot like 2012 growth.
And when you plug these new numbers into the election forecasting model of Yale University’s Ray Fair — assuming next quarter is no better than the past two — it shows a 4-point Mitt Romney victory over Barack Obama (in the two-party vote totals).
Some pundits will put a smiley face these numbers, saying a) at least the U.S. economy is growing and b) at least the U.S. economy is doing better than the EU economy. But that’s a case of lowering expectations. America should and can do better.