An 'Awesome Economy'? Not Even Close

"Everything is awesome", stated the headline of a recent Politico piece by Michael Grunwald which goes on to list many economic statistics showing how well things are going in the U.S.

Indeed, some economic indicators are now better now than when compared to the height of the crisis, but those conditions were bound to change just as most of the water in New Orleans following Hurricane Katrina receded without anyone doing much to encourage it. All the same, current claims of doing “better” than during the depth of a major recession hide how bad things still are compared to before the crisis. Here are some examples:

  • While crashing in recent months, gas prices at the pump still averaged this year above the pre-Obama annual averages.
  • The Deficit for the just-concluded Federal budget year was larger (in both dollar terms and as a percent of the economy) than in the years before the crisis.
  • Sales of existing homes are weaker than from before the bubble era, and sales of newly-built homes in 2014 was still weaker than all but two of the 45 years (!) leading up to Obama.
  • The Unemployment Rate for all of 2014 is on pace to be worse than any annual average under Bush and worse than most Clinton years as well.
  • Household Income is 4.5% lower compared to when the previous recession started seven years ago.
  • The Poverty Rate -- the percent Americans living in poverty -- is worse than any year under Bush and worse than most Clinton years too despite the fact that the elevated Obama government spending for the poor suppresses the real poverty rate.
  • The economy over the last twelve months ending in September rose by $727 billion (in raw dollars) but only after the Federal Reserve pumped $710 billion into the economy during the same period. The 120 days it took for the Dow to jump from 17K to 18K gave people some tickles but it is almost five times longer than the 26 days it took for the Dow to jump from 13K to 14K before the last recession.
  • The Economic Stress Index in Obama's first year was indeed at a devastating record high of 19, yet the Index is closing 2014 at an elevated 8. While this is a big improvement, it is still weaker than the four years leading up the recession (2004-2007) when the Index averaged annually a 5. The same four years under Clinton, the Index averaged a 3 and the same years under President Reagan it averaged a 4.

Why is the stress index still elevated?

Simple:

1) GDP/economic growth is weaker now than in previous recoveries despite the fact that the Fed is still underpinning the economy with a $4.5 trillion balance sheet. If things were “awesome” or even close to good, the balance sheet could have been cut back to the minimal $800 billion (1/5 the current size!) it was before the crisis. But things are obviously not awesome.

2) The Underemployment Rate (U6) is still very elevated. The U6 is the broadest view of the employment situation because it counts the regular unemployed (reflective in the official Unemployment Rate) plus those desultorily looking for jobs, plus those who have only part-time jobs because the economy does not provide them a full-time job. The U6, along with the regular Unemployment Rate, does not count those who completely dropped out of the workforce because they gave up. Despite those missing millions, the U6 is still elevated.

3) Household Income is trailing badly. Yes, the economy is adding jobs but too many of those are part-time jobs, and many jobs -- including full time -- are paying bubkes; hence household income is still weak. In November, household income was 2.7% lower than when the recession “ended” in June of 2009 according to the widely-accepted Sentier Research, and it is 4.5% worse than when the recession started.

Essentially, the narrow-area data points outlined above and the broad data points reflective in the Economic Stress Index are all still weak compared to the years or decades before Obama came in. Using 2009 as a starting point to measure current levels of “success” is flawed or at best simply misleading, because the depth of the crisis was never bound to remain the same forever. In fact, months into the crisis and shortly before Obama took office, the CBO projected that the economy in the four years 2011 through 2014 would grow annually at 4%, but we have not gotten anywhere close to those growth numbers.

"Everything is awesome", stated the headline of a recent Politico piece by Michael Grunwald which goes on to list many economic statistics showing how well things are going in the U.S.

Indeed, some economic indicators are now better now than when compared to the height of the crisis, but those conditions were bound to change just as most of the water in New Orleans following Hurricane Katrina receded without anyone doing much to encourage it. All the same, current claims of doing “better” than during the depth of a major recession hide how bad things still are compared to before the crisis. Here are some examples:

  • While crashing in recent months, gas prices at the pump still averaged this year above the pre-Obama annual averages.
  • The Deficit for the just-concluded Federal budget year was larger (in both dollar terms and as a percent of the economy) than in the years before the crisis.
  • Sales of existing homes are weaker than from before the bubble era, and sales of newly-built homes in 2014 was still weaker than all but two of the 45 years (!) leading up to Obama.
  • The Unemployment Rate for all of 2014 is on pace to be worse than any annual average under Bush and worse than most Clinton years as well.
  • Household Income is 4.5% lower compared to when the previous recession started seven years ago.
  • The Poverty Rate -- the percent Americans living in poverty -- is worse than any year under Bush and worse than most Clinton years too despite the fact that the elevated Obama government spending for the poor suppresses the real poverty rate.
  • The economy over the last twelve months ending in September rose by $727 billion (in raw dollars) but only after the Federal Reserve pumped $710 billion into the economy during the same period. The 120 days it took for the Dow to jump from 17K to 18K gave people some tickles but it is almost five times longer than the 26 days it took for the Dow to jump from 13K to 14K before the last recession.
  • The Economic Stress Index in Obama's first year was indeed at a devastating record high of 19, yet the Index is closing 2014 at an elevated 8. While this is a big improvement, it is still weaker than the four years leading up the recession (2004-2007) when the Index averaged annually a 5. The same four years under Clinton, the Index averaged a 3 and the same years under President Reagan it averaged a 4.

Why is the stress index still elevated?

Simple:

1) GDP/economic growth is weaker now than in previous recoveries despite the fact that the Fed is still underpinning the economy with a $4.5 trillion balance sheet. If things were “awesome” or even close to good, the balance sheet could have been cut back to the minimal $800 billion (1/5 the current size!) it was before the crisis. But things are obviously not awesome.

2) The Underemployment Rate (U6) is still very elevated. The U6 is the broadest view of the employment situation because it counts the regular unemployed (reflective in the official Unemployment Rate) plus those desultorily looking for jobs, plus those who have only part-time jobs because the economy does not provide them a full-time job. The U6, along with the regular Unemployment Rate, does not count those who completely dropped out of the workforce because they gave up. Despite those missing millions, the U6 is still elevated.

3) Household Income is trailing badly. Yes, the economy is adding jobs but too many of those are part-time jobs, and many jobs -- including full time -- are paying bubkes; hence household income is still weak. In November, household income was 2.7% lower than when the recession “ended” in June of 2009 according to the widely-accepted Sentier Research, and it is 4.5% worse than when the recession started.

Essentially, the narrow-area data points outlined above and the broad data points reflective in the Economic Stress Index are all still weak compared to the years or decades before Obama came in. Using 2009 as a starting point to measure current levels of “success” is flawed or at best simply misleading, because the depth of the crisis was never bound to remain the same forever. In fact, months into the crisis and shortly before Obama took office, the CBO projected that the economy in the four years 2011 through 2014 would grow annually at 4%, but we have not gotten anywhere close to those growth numbers.