Obama's GDP Magic
Magic is the art of illusion. The same can be said of the Obama administration's recently revised second-quarter GDP figures. There's a lot less there than meets the eye.
On Thursday, the Bureau of Economic Analysis issued a report that revised second-quarter GDP numbers up from 1.7% to a more robust 2.5%. Not exactly a colossal number, but respectable -- that is, until you look up the magician's sleeve.
In reality, much of the upward revision resulted from improving balance of trade numbers, which are factored into GDP. It wasn't that more Americans were working, producing more, or earning more -- it was that they were importing less and exporting more. As a result, second-quarter GDP shot upward, making it look like the economy has turned around. It has not.
The BEA report itself made it clear that the Obama economy continues to limp along. Key elements of GDP related to wage growth remain anemic, including real personal consumption expenditures, nondurable goods, and spending on services. All of these declined in the second quarter.
No wonder personal consumption declined. More than 80% of jobs created year to date are part-time, low-paying jobs. No wonder fast-food workers are striking. Not that striking will do them much good -- they should be marching on the White House.
An unprecedented number of Americans are still laboring at minimum wage, and in most cases part-time, and the reason is Obama's hostility toward business. Increased regulation, higher taxes on small business owners, and ObamaCare have stalled economic growth in the U.S. Given the number of Americans who are still looking for employment, the idea of $15 an hour for fry cooks is laughable. A vote for Obama was a vote for $7.25 an hour. Get used to it.
Still, GDP rose in the second quarter, and the real story is why. The latest numbers show a dramatic improvement in the U.S. balance of payments. It's not just that America is exporting more; it is what the U.S. is exporting, and what it is that makes America more competitive as an exporting nation. It is also the enormous reduction in one category of imports: oil.
After decades of shipping boatloads of dollars overseas, the U.S. has now become a net energy exporter. Not only that, but a 30% increase in domestic oil production just in the last year has cut oil imports. One estimate shows U.S. oil imports falling from a high of 10.1 million barrels per day to 6.8 million between 2005 and 2020. That reduction is now underway, and it is showing up in GDP figures.
Moreover, vast supplies of cheap natural gas have begun to fuel a renaissance of domestic industrial and chemical production, contributing even more to GDP growth. A PWC report confirms that the shale gas revolution could create one million new jobs in U.S. manufacturing by 2025 while reducing energy expenses for U.S. companies by almost $12 billion annually. It is fracking that is giving U.S. manufacturing an advantage over foreign competitors. The results of this energy advantage will show up in GDP reports for years to come. That is, unless Obama manages to kill it off.
Who should get credit for the upward revision in GDP? Obama wasted no time in taking credit himself. And astoundingly, he took credit for the key element underlying that revision: the reduction in oil imports resulting from increased domestic production. Like Al Gore with his claims of inventing the internet, it would appear that Obama now claims to have invented fracking. "Government funded research," he claims, helped "develop the technology" behind increased domestic production. Next thing you know, Obama will be sharing a brew with Rex Tillerson, CEO of Exxon.
In reality, Obama has done just about everything in his power to block domestic oil production. He has opened investigations into fracking pollution, sought to regulate domestic drilling via the EPA, urged the SEC and other regulatory agencies to force energy companies to reveal global warming liabilities and other environmental litigation risks in their annual reports (thus driving up their cost of investment capital), slowed and even shut down permitting in the Gulf of Mexico, blocked all new permitting on federal lands (including ANWR and both continental coasts), and called for $44 billion in new taxes on oil and gas companies. In other words, he has been consistently hostile to expanded domestic oil production.
But now he wants to take credit for it, and for improving GDP numbers. Somehow, the names of those American corporations that are actually responsible for increased production -- ExxonMobil, Chevron, ConocoPhillips, Halliburton, and the rest -- are missing from the White House blog. It's as if, without having produced one barrel of oil or anything else over the last five years, the president thinks he is responsible for increased domestic energy production. This is beyond delusional.
There is no doubt that the fracking revolution is contributing to an improved trade balance and to progress in U.S. manufacturing. Even so, 2.5% growth, with an underlying "real" growth (discounting trade balances) closer to 1.7%, is not enough to bring down unemployment. Real unemployment (U-6, which factors in part-timers and workers no longer actively seeking employment), still stands at 14.9%. Even those with full-time jobs have seen their wages decline under Obama. After nearly five years of this administration, household income is still lower than it was in 2004 -- a little gift from Barack to the middle class.
Only a pro-business, pro-energy, pro-growth administration will turn this economy around.
In the meantime, it will be real GDP growth of less than 2%, no matter what the Houdinis in Washington tell us. That is, unless Obama manages to shut down the domestic oil industry completely. Then the official number will once again be 1.7%, and the real number will be zero.
Jeffrey Folks is the author of many books on American politics and culture, including Heartland of the Imagination (2013).