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.

  1. Tuck

    So Obama hired the Argentinian economic statistics department, huh?  Clever.

    “…before the housing market began to sink.”

    It’s sinking now.  Just talked to the head of the town finance committee in my blue state: housing prices down 12%…

  2. Rocket City Dave

    After the Boom comes the Bust.

    I find it hard to believe we’ll make it to 2017 without a recession. Too much of our growth is dependent on increasing consumer/business debt (financed automobile sales have been an outsized part of this recovery). That debt-financed consumption could be very fragile if interest rates start to rise.

    I’d be more confident in a real recovery if businesses were to shift to investment in productive ventures as opposed to buying back stock, giving generous dividends and speculating with financial instruments.

  3. Totus Porcus

    Weren’t we all concerned that a lot of the Q3 growth was a buildup of inventory?  Are we not worried about this anymore?

  4. Linc Wolverton

    I’m not sure one can call two good quarters a boom, but the direction is positive, welcome, and overdue.

    However, all this growth only moves us closer to the day of the need for new capital investment for business and the resulting pressure on the market for investment funds — pressure that runs head on into the Fed’s bond-buying spree, the result of which will be debt service (almost certainly) in a higher-interest-rate environment.

    Higher interest rates will slow business investment until price increases — read inflation — make such investment worthwhile.

  5. Aaron Miller

    Perhaps employers have finally given up waiting for regulatory certainty and have resigned themselves to Obama’s confusion by fiat approach.

  6. Dana Fisher

    “Fiscal drag”?  “Fiscal headwinds”?  I thought we were still running a federal budget deficit of $750 – 800 billion, which I always thought was considered “stimulative.”  Bernanke has also repeatedly used the term “fiscal headwinds,” both in his testimony to Congress and in his press conferences.  What on earth does he mean by the term?  Headwinds by what standard?  All I can imagine is that he means the current deficits are less than the ‘new normal’  of recent trillion dollar annual deficits, and less than what he considers desirable.  Is that right?  Can someone enlighten me?

  7. J.Maestro

    Well, political gridlock does have its advantages. Watch forecasts turn downright rosy the worse Harry Reid’s prospects get.

  8. Neolibertarian

    Common sense and recent history says it’s a static sine wave.

    If we’re headed towards 2-3-4% growth, then explain what’s causing it.

    The Bakken?

    New markets opened through free trade agreements? Have there been major new agreements?

    Consumer spending? With 90 million Americans not working? Government benefits are generous, but don’t produce significant disposable income.

    Regulations cost money and bite profits and growth–are we to believe regulations have been reduced over the last year or so?

    Is the time-released ACA now having a net positive effect on the economy?

    Official GDP methodology was revised a couple of years ago to include government R&D spending as preordained profit.

    We know why: this is the President’s key pet concept. Money spent by the government is why there’s an internet and iphones. He and Beth Warren believe government R&D spending always pays off.

    While it usually does, it’s certainly not automatic. And the return on investment can take decades. And can be a wash in many instances.

    Barack wants to count his chickens before they come home to roost.

    It’s a static sine wave: 0.01% GDP.

  9. Neolibertarian
    J.Maestro: Well, political gridlock does have its advantages. Watch forecasts turn downright rosy the worse Harry Reid’s prospects get.

    There’s one little flaw in that theory: Dick Durbin.

  10. Neolibertarian
    Dana Fisher: “Fiscal drag”?  “Fiscal headwinds”?  I thought we were still running a federal budget deficit of $750 – 800 billion, which I always thought was considered “stimulative.”  

    They’re claiming $400 billion deficits now. I haven’t checked their math, but they have the stats to prove it.

    Yes, that’s still 400,000 million dollars. But it’s ever so much better than $800 billion.

  11. Koblog

    One, everyone associated with the Obama administration, from Obama on down, is a liar. 2012 unemployment stats, anyone? Why should this economic data be reliable?

    Two, how can any economic “progress” be happening with $85 billion in fiat money being “trickled down” to the crony banks EVERY month — who appear to be the same banks reporting this economic “progress”?

    Three, what happens when the Fed pulls back its $85B/month teat?

    The Fed-manipulated market is setting us suckers up for another fall. Time to trim the fools…again.

  12. J.Maestro
    Neolibertarian

    J.Maestro: Well, political gridlock does have its advantages. Watch forecasts turn downright rosy the worse Harry Reid’s prospects get.

    There’s one little flaw in that theory: Dick Durbin. · 2 hours ago

    Okay, maybe it’s not the fate of the Senate that will matter. But I do think the sequester — a very modest but hard-fought GOP gain — had a tremendous positive effect for the economy.

    Remember that roaring economy that made Clinton such a hero? Yeah, that wasn’t going to happen until Congress took it’s modestly conservative turn.

    The converse was true in 2006 when Congress swung so sharply into the marxist frenzy that culminated in the recession and the Obamunism that locked the recession in place. Even small rollbacks of Obamunism induces stronger growth.

    The GOP should attribute the stronger growth to the sequester, and explain that’s why it’s vital to keep the sequester in place. Oh wait…

  13. ParisParamus

    Business have figured out how to be more productive with fewer employees–machines don’t need health insurance policies!–and the Dems’ ability to neuter new energy production has been checked by the House, and Obama’s new horrid reputation  #WINNING.

  14. James Gawron
    Koblog: One, everyone associated with the Obama administration, from Obama on down, is a liar. 2012 unemployment stats, anyone? Why should this economic data be reliable?

    Two, how can any economic “progress” be happening with $85 billion in fiat money being “trickled down” to the crony banks EVERY month — who appear to be the same banks reporting this economic “progress”?

    Three, what happens when the Fed pulls back its $85B/month teat?

    The Fed-manipulated market is setting us suckers up for another fall. Time to trim the fools…again. · 20 hours ago

    Jim,

    This isn’t my area of expertise but I’m with Mr. Koblog.  I just can’t trust these people anymore.  When Darrel Issa said, “This Administration has a communication problem with the truth“, he said it all.

    Regards,

    Jim

  15. Sisyphus

    Obama’s economic program is obviously a success. The lowered expectations are such that “boom” and 4% (3.5%? 3%?) growth are mentioned in the same sentence.

    It’s not like they haven’t inflated numbers before for headlines only to retrench in the buried corrections announcements. What is disturbing is that Walls Street still treats these numbers as if they had some foundation.

  16. ParisParamus

    Mr. Pethokoukis, one of the questions I would force you to answer if I could lock you in a room (don’t worry, there would be beverages, and food, and candy…) is how the Fed can do quantitative easing without creating massive inflation. Or to put it another way, what did the Weimar Republic do wrong?

  17. Sisyphus
    ParisParamus: Mr. Pethokoukis, one of the questions I would force you to answer if I could lock you in a room (don’t worry, there would be beverages, and food, and candy…) is how the Fed can do quantitative easing without creating massive inflation. Or to put it another way, what did the Weimar Republic do wrong? · 6 hours ago

    The inflation is there, more than a year’s GDP in magical computer dollars plunked into banks as reserves. It stays right there because the government actually pays interest now on those reserves, unlike prior practice where interest could only be made by lending the money. 

    Yes, you heard me right. We the taxpayers are paying interest to avoid the banks finding borrowers of merit who might, you know, use the money to turn a profit. Almost as good as that unmatchable profit avoidance scheme launched by the 111th Congress, ObamaCare, which is now looking like such a major bust that taxpayers will also be bailing out the insurance companies that pushed the idiocy in the first place. All part of the original bill, of course. The 111th knew they were throwing us over the cliff.

  18. ParisParamus

    Sisyphus, I’m trying to fully grasp what you’re saying, but if banks are getting “risk-free interest payments amounting to a year of US GDP”  (I never heard the sum quoted before; only that banks were getting free money), why should that stop banks from lending money on other than super-conservative terms?  Why doesn’t banks being “given” money not encourage them to lend liberally (which they are not doing)?