The Long-Awaited Obama Boom — Such as it is — May Have Finally Arrived
The US economy grew by a revised 4.1% annual pace in the third quarter, the first time it’s notched 4%-plus growth since 2011.
Here is Citi’s take:
The GDP was revised up by a half point to 4.1% in the third pass at third quarter (following a 0.8 percentage point adjustment last month). After a policy/uncertainty related pullback, the economy expanded at a solid pace in the second and third quarters. The 3.3% annual rate for the middle of the year was especially noteworthy when we consider that the economy was working against significant fiscal headwinds. We see this stellar performance in the middle of the year as a sign that the underlying pace of economic growth is healthy. And as the fiscal drag dissipates in the coming year, we see steadier growth around 3%.
And IHS Global Insight’s:
The third quarter data now show consumer spending grew at a relatively solid 2.0% annual rate. With the relatively strong October reading on personal consumption expenditures, and October and November’s solid retail sales data, we can confirm the consumer’s newly expanded role in the economy. As consumer spending constitutes two-thirds of GDP, the health of this sector is a prerequisite to 2014’s forecast of faster economic growth.
The third quarter’s outstanding feature remains the 1.7 percentage point contribution from additional inventories. We think growth in the fourth quarter will be strong enough to absorb some, but not all, of these inventories. With solid contributions contributing from the housing and exports sectors, growth in the fourth quarter should be between 2.0-2.5%. Excluding the impact of inventories, this growth will be closer to 3.0%. Thus, the third quarter’s stellar growth rate is not destined to be repeated, but is it a harbinger of a better year for the economy in 2014.
So, generally, Wall Street thinks growth dips in the 4Q then reaccelerates to 3%ish in 2014. Goldman Sachs has been looking for growth as fast as 3.5%. As its chief economist Jan Hatzius told Business Insider:
We expect the private sector impulse to stay positive in 2014-2015, as both households and firms continue to spend a larger share of their income. With fiscal drag receding, this should allow the economy to accelerate to an above-trend GDP growth rate.
It now appears the US is entering the economic sweet spot of the Obama presidency, though the “good times” aren’t anywhere near as good as the White House had hoped. Since the beginning of his presidency, Barack Obama and his economic team have been predicting the recovery would eventually accelerate into, if not exactly a Reaganesque boom, then at least a legitimate boomlet.
For instance: thanks to the stimulus, unemployment was never supposed to hit 8% and be back down to 5% this year. And in August 2009, Team Obama predicted economic growth would quicken to 4.3% in 2011, followed by 4.3% growth in 2012 and 2013. And 2014? Another year of 4% growth.
Instead of years of 4% or higher growth, we’ve had exactly two quarters of growth that strong, including the most recent one. I have written previously about what I think has gone wrong since 2007, including anti-growth fiscal and monetary policy. But there is a good chance the next year will be the best for the American economy since 2005, before the housing market began to sink. It’s about time.