Pethokoukis, Economics, U.S. Economy

The long-awaited Obama boom may have finally arrived — such as it is

Obama speaks on the Affordable Care Act in Boston (BU Interactive News) (Flickr) (CC by 2.0)

Obama speaks on the Affordable Care Act in Boston (BU Interactive News) (Flickr) (CC by 2.0)

The US economy grew by a revised 4.1% annual pace in the third quarter, the first time it’s notched 4%-plus growth since 2011.

Here is Citi’s take:

The GDP was revised up by a half point to 4.1% in the third pass at third quarter (following a 0.8 percentage point adjustment last month). After a policy/uncertainty related pullback, the economy expanded at a solid pace in the second and third quarters. The 3.3% annual rate for the middle of the year was especially noteworthy when we consider that the economy was working against significant fiscal headwinds. We see this stellar performance in the middle of the year as a sign that the underlying pace of economic growth is healthy. And as the fiscal drag dissipates in the coming year, we see steadier growth around 3%.

And IHS Global Insight’s:

The third quarter data now show consumer spending grew at a relatively solid 2.0% annual rate.  With the relatively strong October reading on personal consumption expenditures, and October and November’s solid retail sales data, we can confirm the consumer’s newly expanded role in the economy.  As consumer spending constitutes two-thirds of GDP, the health of this sector is a prerequisite to 2014’s forecast of faster economic growth.

The third quarter’s outstanding feature remains the 1.7 percentage point contribution from additional inventories.  We think growth in the fourth quarter will be strong enough to absorb some, but not all, of these inventories. With solid contributions contributing from the housing and exports sectors, growth in the fourth quarter should be between 2.0-2.5%.  Excluding the impact of inventories, this growth will be closer to 3.0%.  Thus, the third quarter’s stellar growth rate is not destined to be repeated, but is it a harbinger of a better year for the economy in 2014.

So generally Wall Street thinks growth dips in the 4Q then reaccelerates to 3%ish in 2014. Goldman Sachs has been looking for growth as fast as 3.5%. As its chief economist Jan Hatzius told Business Insider:”We expect the private sector impulse to stay positive in 2014-2015, as both households and firms continue to spend a larger share of their income. With fiscal drag receding, this should allow the economy to accelerate to an above-trend GDP growth rate.”

It now appears the US is entering the economic sweet spot of the Obama presidency, though the “good times” aren’t anywhere near as good as the White House had hoped. Since the beginning of his presidency, Barack Obama and his economic team have been predicting the recovery would eventually accelerate into, if not exactly a Reaganesque boom, then at least a legitimate boomlet.

For instance: thanks to the stimulus, unemployment was never supposed to hit 8% and be back down to 5% this year. And in August 2009, Team Obama predicted economic growth would quicken to 4.3% in 2011, followed by 4.3% growth in 2012 and 2013.  And 2014? Another year of 4% growth.

Instead of years of 4% or higher growth, we’ve had exactly two quarters of growth that strong, including the most recent one. I have written previously about what I think has gone wrong since 2007, including anti-growth fiscal and monetary policy. But there is a good chance the next year will be the best for the American economy since 2005, before the housing market began to sink. It’s about time.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

9 thoughts on “The long-awaited Obama boom may have finally arrived — such as it is

  1. Obama doesn’t need a boom, just modest to moderate real GDP per capita growth, in the next 3.25 years to overtake Bush43.

    FRED graph, normalized to quarter (Q4) prior to inauguration.

    Place your bets. :-)

    • LOL, good one smarmy. You should write for The Onion, except that’s too hard in our contemporary theatre of the absurd.

      Since past performance IS an indicator of future returns with this administration, the deck is severely stacked against him.

      And, if you dig into the upward revisions for Q3, you’ll find that the 2 largest components driving it were healthcare (LMAO), and gas/energy consumption.

      The net Obamascare drag on the economy will destroy any performance above 2% going forward, and since over HALF of all 2013 growth was attributable to inventory build, which must be flushed, I wouldn’t bet the over at 2 next year, especially after Christmas comes in very, very weak (taper off).

      Bush 43 is hardly a benchmark to emulate, though he will likely easily eclipse Oblunder, easily.

        • Smarmy, this is a holiday miracle!

          For once, and likely only once, we are on the same side!

          The problem is, you view economics through the lens of red team/blue team.

          Government got much, much larger under Bush 43, too. Growth, especially small business growth and entrepreneurship

          suffered under him because of that, and the effects of it are most definitely being felt in Odumbo’s worst recovery on record, so he can blame Bush for that, but Oblunder hasn’t, not that I’ve heard.

        • Bush 43 was not an economic illiterate and is worthy of emulation by our neo-Marxist president. Iraq colors everything about Bush, but his economy was not that bad. His term started with the dot com recession and he was smart enough to lower taxes—which worked AGAIN.

          But the jobs hemorrhage to Asia started before Bush and has continued unabated to the present day.

          We need corporate tax reform (and other incentives) to bring back jobs form Asia. It’s already a nascent trend.

          Unfortunately, you won’t find anyone with any intellectual capability in or around the White House to grasp my point about jobs repatriation.

  2. By the way, I’ve revised my previous (pre-GDP restatements) predictions (1.5% cap) to comfortably predict the US will never see 2% GDP (using the new methodology) under Obamascare and Doddering-Frank again.

    Place your bets.

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