Photo: shawn thew/European Pressphoto Agency
About That Obama ‘Boom’
The economy averaged 1.8% annual growth, 2.1% after the recession.
So much for that economic “boom” that President Obama was supposed to have left his successor.
That has been the spin among Democrats and progressive economists, but Friday’s GDP report for the fourth quarter provided another in eight years of reality checks on the Obama economic record.
The Commerce Department said growth clocked in at 1.9% for the last quarter of 2016, which was a major deceleration from 3.5% in the third quarter after three previous quarters of about 1.1%. The spin had been that a strong end of the year would leave President Trump with economic momentum, which after eight years of slow growth is like a runner who takes six hours to finish a marathon but sprints the last 25 yards.
Yet even this supposed last Obama sprint was oversold, as consumer spending slowed and net exports were a drag after two quarters of contributing to higher GDP. One good sign was a modest increase in business investment after several dreadful quarters and historically weak capital investment throughout the Obama expansion.
Speaking of weak, growth for all of 2016 clocked in at 1.6%, the slowest since 2011 and down from 2.6% in 2015. That marks the 11th consecutive year that GDP growth failed to reach 3%, the longest period since the Bureau of Economic Analysis began reporting the figure. The fourth quarter also rings out the Obama era with an average annual growth rate of 1.8%, which is right down there with George W. Bush for the lowest among modern Presidents.
Mr. Obama inherited a deep recession, but that makes the 2.1% growth average since the recession ended all the more dismaying. You have to work hard to suppress growth after a deep downturn, and Mr. Obama did that by putting income redistribution ahead of growth as a policy priority. He achieved the remarkable feat of slower growth and more inequality.
Mr. Trump now has the chance to improve on this record, and the key this long (seven and a half years) into an expansion is business investment. Consumers can’t do much more than they have and the labor market is tight in much of the country.
This means faster growth will have to come from liberating the trillions of dollars in capital that have been waiting for the political and regulatory climate to change. The promise of the GOP-Trump proposals on tax reform and deregulation have already stirred the stock market, and if they are implemented they could unlock a burst of capital spending and risk-taking.
A closing word to Trumpians who will point to the fourth-quarter decline in net exports that subtracted 1.7% from GDP. Part of the explanation is that a bumper crop of soybean exports boosted growth in the third quarter and then dropped off at the end of the year. This is not an argument for starting a trade war with China or Mexico, which could harm U.S. exports.
Imports are subtracted from GDP calculations to avoid overstating domestic production, but that doesn’t mean the U.S. should ban imports or run a trade surplus. Imports are vital to American prosperity, both as components for exports and affordable goods for consumers.
They enhance the U.S. standard of living. Mr. Trump should keep his policy focus on growth, not on the meaningless trade balance.