Gross domestic product (GDP) expanded at only a 0.7% seasonally adjusted annualized rate in the fourth quarter of last year, the Commerce Department reported today. That’s quite weak.
2015 as a whole wasn’t so good either. GDP expanded at only 2.4%, the same as in 2014. That’s called limping along. For as James Pethokoukis points out, from the end of World War II through 2005, the economy grew at an average annual rate of 3.5%.
If the poor fourth quarter performance persists well into this year, it spells big trouble for Hillary Clinton (or any other Democratic nominee not named Bernie Sanders). The Democrats own the economy, and a sense that the extremely modest recovery of the past six years is over would hurt the prospects for anything resembling a third Obama term.
The Republican most helped by such a sense probably would be Donald Trump. His success in business causes many to believe he can “grow the economy.”
Without fully exonerating the Democrats for our sluggish economy, we should be skeptical about claims that either political party can grow the economy in the short term. Pethokoukis reminds us that the economy hasn’t managed a single year of even 3% growth since 2005. We’ve experienced something of a lost decade, at least by American standards.
Digging into the numbers, you find a combo of slowing labor force growth and weak productivity to blame. And it’s for those deeper structural reasons many forecasters, such as the Congressional Budget Office, think the US is now a permanent 2% economy rather than a more vigorous 3% economy.
Better policies can boost productivity by promoting innovation. Pethokoukis points to tax policy, regulation, education, infrastructure, housing, basic research, and immigration (of the right kind).
But such improvement can be expected to occur only gradually. To the extent that public policy affects productivity in the first term of the next president, it will likely be the policies of the past decade that produce the effect.
The Fed can affect the economy much more quickly. And Desmond Lachman argues that it “may be repeating the same mistake it made in 2008 of being overly sanguine about the US and global economic outlooks.”
Today’s GDP numbers suggest that there’s little reason to be sanguine about the former outlook.