Obama's Economic Report Card: B+ for the First Year
As Washington approaches summer, typically a time when the capital's public policy pace slows -- something that's especially true during congressional election years -- let's grade President Obama's first-year performance in his key role as national economic manager.
First, the economy, not long ago in the throes of its worst recession since the Great Depression, is now growing. U.S. GDP increased 5.6% in the fourth quarter of 2009 after rising 2.2% in the third. The National Bureau of Economic Research, the nation's widely recognized arbiter of economic cycles, hasn't officially declared an end to the recession yet, but the commercial trends are clear.
The manufacturing sector is expanding, durable goods orders are up substantially, exports are rising, the housing sector appears to be stabilizing, and businesses are displaying a renewed interest in deploying capital, expanding operations, and striking new deals. What's more, the consensus opinion of economists surveyed by Bloomberg News is for the U.S. economy to grow by 3% in 2010.
Second, concerning jobs, the period of massive job losses is over. A year ago, the U.S. economy was hemorrhaging about 700,000 jobs per month. Last month, the U.S. economy added 162,000 jobs -- its largest gain in three years. Moreover, although the nation has a colossal task ahead to create enough jobs to make up for the 8.5 million lost during the recession, there are promising signs in temporary hiring, in manufacturing and in export-related businesses that the economy will continue to add a substantial number of positions in the months and quarters ahead.
The most likely short-term scenario? A gain of 150,000 new jobs per month, moving forward. That's still not adequate, given the nation's workforce needs, but it's nevertheless far better than where the U.S. was at the end of 2008.
Third, worker productivity continues its advance. Productivity increased at a 6.9% annual pace in the fourth quarter of 2009 and at a 3.8% pace for the full year -- the biggest productivity gain since 2002. Further, while economists will argue over the type of workforce changes and company decisions that are increasing productivity, one fact is indisputable: U.S. corporations in 2010 are leaner, more profitable, and hence are in a better position to deploy capital in the years ahead -- something that will strengthen the U.S. economy.
Fourth, U.S. exports are rising -- they're up about 15% since January 2009 -- and those increased sales to international customers have helped keep the nation's trade deficit low -- just $37.3 billion in January 2010. Also, if the "frugal consumer" trend continues, and the dollar's value versus the world's other major currencies remains the same, there's a chance the U.S. could start running a trade surplus in a couple of years -- increasing the nation's wealth and the funds available for investment.
Grading His Test
Now, the above represents a healthy slice of good news, and one would have to grade President Obama's performance as good. Using a college scale, I'd give him a B-plus. Even so, some of Obama's critics will counter with "It's just the natural workings of the market economy that have led to the upturn." And there's an ounce of truth in that argument.
But a lot of the recovery also is due to the Obama-supported, interventionist, Keynesian policies that both stimulated the economy and stabilized credit markets. Typically, recoveries have three stages: Stimulus (fiscal, monetary), then inventory replenishing and finally, private sector investment and job growth.
Right now, it looks like the U.S. economy is entering the third recovery stage. To be sure, along with balancing the federal budget, that stage is going to be a tough hurdle: The nation's unacceptably high 9.7% unemployment rate means the economy will have to create 200,000 jobs (or more) a month for more than five years running to bring the unemployment rate back down to normal levels of between 5% and 6%.
But investors should know that the foundation for that job growth is in place, and the rise toward 11,000 by the Dow -- a leading economic indicator -- speaks to that foundation.
So when you hear chatter asserting that President Obama's policies aren't good for investors, the market and the economy, don't listen to the conventional wisdom. Just look at the record.