How the State of the Economy Has Changed Under Obama
Obama has the daunting task in his speech of refuting GOP claims that he's antibusiness -- while at the same time trying not to alienate his liberal supporters. His midterm move to the political center is becoming more apparent every day. The president recently picked General Electric (GE) CEO Jeffrey Immelt to head an economic advisory group, and he has named former Commerce Secretary and JPMorgan Chase (JPM) exec William Daley as his new White House Chief of Staff.
Then and Now
But before discussing where Obama wants to take the country, it's important to remember where it has been. Upon taking office, Obama inherited two costly wars and an economy that had violently imploded just months before. The abrupt downturn brought an end to two venerable Wall Street firms, Lehman Brothers and Bear Stearns, and it sent U.S. automakers General Motors (GM) and Chrysler into bankruptcy. Credit markets were frozen so solid that even creditworthy firms such as GE had difficulty borrowing. The government lent these firms trillions of dollars to keep them solvent.
"He inherited an economy that was in a really bad place," says Chad Stone, chief economist Center on Budget and Policy Priorities, a liberal think tank. Stone declined to assign Obama a grade on his economic policy, because '"things were a lot worse off than originally thought."
Here's a review of where the economy has progressed, and where it continues to falter, under the current administration:
Stock Market: The S&P is up 50% since Obama took office. In 2008, the index fell 37%. Helping the rebound is the extension of the Bush-era tax cuts -- and the realization the government has made a profit on many of its bailouts. Still, the S&P is up only 2.3% over the past five years, leaving the retirement savings of many investors in tatters.
Taxes: Extending the Bush tax cuts added $700 billion to the deficit over the next decade and preserved the estate tax, which Republicans wanted to eliminate. But without these extensions, the average tax bill would have jumped by several thousand dollars. Research from Moody's found that rich people tend to save their tax cuts rather than spend them.
Deficit: Obama inherited a $1.3 trillion deficit when he took office, and it's projected to be $1.27 trillion in the current fiscal year, down from $1.56 trillion in fiscal 2010. The president has proposed a two-year pay freeze for all civilian federal workers -- an act that will reportedly save $2 billion over the remainder of this fiscal year, $28 billion over the next five years and more than $60 billion over the next decade. Last week, the conservative House Republican Study Committee released a plan to cut federal spending by $2.5 trillion over the next 10 years.
Housing: A survey released in December by Trulia.com and RealtyTrac found 58% of Americans believe the housing market will rebound after 2012. For now, though, foreclosures continue at a record pace -- despite the slowdown caused by the concerns over the robo-signing scandal. RealtyTrac says 2.9 million homes were foreclosed upon in 2010, up 23% from 2008. But the news wasn't all bad. According the National Association of Realtors, December existing-home sales rose 12.3% from November to a seasonally adjusted annual rate of 5.28 million. But that figure is down 2.9% from December 2009. In comparison, existing-home sales in 2008 dropped 13.1% to 4.9 million, the lowest since 1997.
Personal Bankruptcies: U.S. consumer bankruptcies increased 9% in 2010 compared to the previous year, according to the American Bankruptcy Institute. But compare that to the nearly 33% increase in filings nationwide in 2008 over 2007.
Jobs: This is the big one, and all indications are that Obama will focus much of his speech on jobs and competitiveness. In December 2008, just before he entered office, the economy shed 673,000 jobs, according to the Bureau of Labor Statistics. In December 2010, the economy added 103,000 jobs, a figure that surprised some economists and sent the unemployment rate down to 9.4%, its lowest level since May of 2009. A recent Gallup Poll found a slight improvement over this time last year in the number of Americans who believe that "now is a bad time to find a job."
Their pessimism is understandable. As Stone of the Center on Budget and Policy Priorities notes in a recent blog post, "We estimate that the rate of job growth would have to roughly triple between now and the end of 2015 just to restore labor market conditions -- five years from now -- to what they were at the start of the recession (roughly a 5% unemployment rate and higher labor force participation)." That's a tall order for sure. But at least there's hope: The latest National Association for Business Economics survey found that 42% of companies say they expect to increase hiring in the next six months.