So Much For “Recovery Summer”

The latest GDP numbers are nothing but bad news for Democrats.

This morning’s release of the 2nd quarter Gross Domestic Product numbers establish pretty clearly that the Obama Administration’s “Recovery Summer” is much less than meets the eye:

There is no more disputing it: the economic recovery in the United States has indeed slowed.

The nation’s economy has been growing for a year, with few new jobs to show for it. Now, with growth at an annual rate of 2.4 percent in the second quarter and federal stimulus measures fading, the jobs outlook appears even more discouraging.

“Given how weak the labor market is, how long we’ve been without real growth, the rest of this year is probably still going to feel like a recession,” said Prajakta Bhide, a research analyst for the United States economy at Roubini Global Economics. “It’s still positive growth — rather than contraction — but it’s going to be very, very protracted.”

A Commerce Department report on Friday showed that the economy had grown at a faster pace earlier in the recovery, expanding at an annual rate of 5 percent at the end of 2009 and 3.7 percent in the first quarter of 2010. Consumer spending, however, was weaker than initially believed.

Many economists are forecasting a further slowdown in the second half of the year, perhaps around an annual rate of 1.5 percent. That is largely because businesses have refilled the stockroom shelves that they had whittled down during the financial crisis, meaning there will not be much need for additional inventory orders.

Fiscal stimulus policies are also expiring, which may further drag on growth. And individual stimulus programs like expanded unemployment benefits have faced huge political battles each time they have come up for extension in Congress.

The approaching midterm elections may further entrench the political stalemate after Congress returns from its August recess. As a result, pressure will probably increase on the Federal Reserve to use its tools to prevent a double-dip recession. Recent reports from Fed officials suggest the central bank has become increasingly worried about where the economy is headed.

Politically, this can’t be described as anything other than a disaster for the Obama Administration and the Democrats. It means that, for the next three months leading up to Election Day, voters will still be dealing with economic uncertainty, high unemployment, and the fear that some unforeseen event could plunge the nation into another recession before we’ve even recovered from the last one.

Ed Morrissey agrees:

There’s no way to spin a 2.4% GDP rate as a positive step in a recovery.  Worse yet, the pattern has been to revise these numbers downwards when Commerce firms up its data.  The next statement of Q2 GDP will come on August 27, just before Congress comes back in session and right at the prime time of summer campaign season, just a week before Labor Day.  If this drops much lower in the next iteration, Democrats will have to explain the failure of their economic program to angry voters across the nation — and they’re not going to want to hear “It’s Bush’s fault!” two years after electing Obama and four years after giving Nancy Pelosi and Harry Reid control of Congress.

Indeed not.

While I still remain skeptical about the prospects for huge Republican gains in November, the pieces are coming into place to create exactly the type of political environment that might bring that about. A bad economy. An unpopular war. And, a President who has clearly lost much of the magic he had two years ago during the election.

Hang on, because this is about to get very interesting.

FILED UNDER: Barack Obama, Campaign 2010, Congress, Economics and Business, Politicians, US Politics
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010 and contributed a staggering 16,483 posts before his retirement in January 2020.

Comments

  1. Herb says:

    The irony? The bad economy, the unpopular war, and the president who lost his mojo were all brought to us by….dun nuh nuh….the Republican party!

    PS. The bad economy is politically bad news for the Dems. But it’s bad news for all of us.

    I’m not voting Republican until they tell me what they’re going to do to fix it. PS…..Jonathan Rauch has a piece that’s worth reading. I don’t have a link…but I saw it via Frum Forum. It’s a “bad news for Republicans” piece that concedes the midterms to the GOP…but looks a bit further into the future. Might be worth a look.

  2. john personna says:

    Well, I’d say the irony hinges on past claims about stimulus and recovery.  We didn’t need those stimulus, for an economy in natural recovery, right?
     
    So, without that natural recovery what do we do?
     
    I don’t really have to ask, I know.  Pretend this lapse is all about fear of future socialism and Obama’s medical plan.  That’s the ticket.

  3. Dave Schuler says:

    The interesting part of the BEA’s release this morning wasn’t the estimate of 2Q2010 GDP.  It was the revised estimates from prior quarters.  Essentially, they’re revising everything from the last couple of years downwards which anybody who’d been paying attention could have told them.

    As suggested in the comment above the critical question is where do we go from here?  Nobody seems to have a particularly good idea and the results from the steps that have been taken so far are lacklustre to say the least.

  4. john personna says:

    Dave, I’m kind of worried that the Consumer Metric Institute’s numbers will continue to lead:
     
    http://www.consumerindexes.com

  5. john personna says:

    BTW, I should back up and say that while I favored a proper stimulus at the time (which I described as time-shifting necessary purchases and not inventing new spending), I kind of buy the argument that the time for stimulus is past.
     
    What we need now is a forward-looking story on taxation and spending.  Five year plans blending in certain taxes and fading out current spending would be idea.  They’d work toward budgetary balance, but beyond that (and more importantly) they’d tell a story of fiscal responsibility.
     
    That story is needed for consumer and then business confidence.

  6. Dave Schuler says:

    Dave, I’m kind of worried that the Consumer Metric Institute’s numbers will continue to lead

    Yeah, I’ve been following the Institute’s numbers.  Interestingly, the BEA’s revised numbers puts their estimates more in line with the CMI’s predictions.

  7. Russ says:

    Until we change the debate to what is good for the American public from what is politically good for the elected officials in DC we will slog along fighting amongst ourselves as to who is right and who is wrong when the truth is that when one side is right (opinion and votes associated) they are the only winners.

  8. Drew says:

    The fact that we consistently get downward revisions, and are always told about “unexpectedly” disappointing results makes the street smart guy in me very suspicious.  I know politics is a full contact sport, and that talking up the economy has its virtues, but is there an honest broker in the house.  never mind, these guys are from Chicago.

    JP – “Five year plans blending in certain taxes and fading out current spending would be idea.”

    I’d love to agree with you on that.  Even as a guy who thinks the problem is 99% spending and 1% taxation, we’ve gotten ourselves in quite a pickle, and we have to fix it.  The problem, from my perspective, is that if you split the baby as you suggest, the empirical evidence is that the bastards will just spend the new tax money. And we are approaching the limits of taxation.  I’ve spent my life not getting cornered.  

      

  9. ponce says:

    “Politically, this can’t be described as anything other than a disaster for the Obama Administration and the Democrats.”
    Unless Americans remember that  U.S. GDP was shrinking the last time the Republicans were in charge.
     

  10. Steve Plunk says:

    I guess there will always be some blaming Bush for the failures of this administration and it’s policies.  Unfortunately that doesn’t help with the problems we face.  Dave Schuler asks for suggestions so I don’t mind if I do.
     
    Start with the previously discussed payroll tax holiday that would stimulate the essential small business sector.  Freeze tax rates for the foreseeable future and take provide all business with an idea of what they may face and plan for accordingly.  Freeze regulations while you are at it.  The uncertainties facing business has created low confidence and restrained investing in not only assets but also employees.
     
    Repeal Obamacare.  Few want it, we can’t pay for it, and it’s likely going to be worse for everyone.  Replace it with small bills that attack each problem and judge success one one piece of legislation at a time.
     
    Establish a real energy policy that allows domestic drilling and removes subsidies for ethanol and alternatives.  Natural gas is the big energy source of the future so get busy on fleet conversions and cogeneration plants.
     
    Freeze or reduce all government spending.  It yields crappy returns and deficits undermine confidence.
     
    Do those things and the economy will come roaring back.
     
     

  11. Drew says:

    Steve Plunk must be a businessman/manager.

    “Freeze or reduce all government spending.  It yields crappy returns and deficits undermine confidence.”

    Because he understands that despite all the bleating and moaning, real managers actually manage their businesses to the revenue and cost realities of the businesses under their stewardship.  They don’t whine like little children that “it can’t be done.”  

    The problem, of course, is that government has precious few leaders, or managers, who understand this.  They just put in another requisition.

  12. john personna says:

    <blockquote>JP – “Five year plans blending in certain taxes and fading out current spending would be [ideal].”
    I’d love to agree with you on that.  Even as a guy who thinks the problem is 99% spending and 1% taxation, we’ve gotten ourselves in quite a pickle, and we have to fix it.  The problem, from my perspective, is that if you split the baby as you suggest, the empirical evidence is that the bastards will just spend the new tax money. And we are approaching the limits of taxation.  I’ve spent my life not getting cornered.</blockquote>
    Sadly it’s an idea without a political party attached.
    <blockquote>The problem, of course, is that government has precious few leaders, or managers, who understand this.  They just put in another requisition.</blockquote>
    Incentives matter.  As Russ said, we can count on DC to do what’s good for DC.

  13. john personna says:

    (I guess next time I’ll try the new control-bar thingies)

  14. Drew says:

    “Sadly it’s an idea without a political party attached.”

    Agreed, but I keep hoping the Republicans can find their way back out of the jungle.  As dubious as I am about that, I have zero – absolute zero – such expectations for Democrats.  See: Pelosi, Reid, Obama.    Its a holding action.

    “Incentives matter.  As Russ said, we can count on DC to do what’s good for DC.”

    Of course.  And hence my almost slavish adherence to minimizing government, and its spending and taxation.  Its the old camels nose problem.  It seems to me a rational person would absolutely fight any new government program, hiring, or taxation, and make these people “economize,” or “manage” until we have worked our way out of this mess.  I see no leadership.  Instead I see Obama as The Dead’s Casey Jones; I’m sure you’ve heard it:

    “Driving that train, high on cocaine, Casey Jones…………….the fireman screams but the engine just gleams….” 

       

  15. Tano says:

    Yet another example of the pundits needing to overblow every piece of news – in order to remain “edgy” and get people riled up.
     
    This “bad news” for the Obama administration is what – a report on what happened 1 1/2 to 4 1/2 months ago????
    Hello people….this is news??? That the Euro crisis in the spring but a damper on the recovery? We didn’t know this already? That the economy grew at a pretty decent clip, but much less than hoped for?
    What makes y’all seriously think that putting a number to a reality that we all lived through months ago is somehow “bad news” for the present or the future?
    This is a lot of hooey.

  16. James Joyner says:

    Testing new comment plugin.

  17. john personna says:

    Re. confidence in political parties and their fiscal responsibility … it’s too bad the record isn’t more clear on which party _actually_ reduces debt.  It’s a muddy signal, with Clinton-era debt reduction, and Bush-era debt expansion (all the while talking the reduction talk).