US Economy Up By Only 2.6% In The Fourth Quarter Just a few days ago Obama had declared victory. It turns out that America has not yet regained its old momentum

WASHINGTON – The White House communications and policy teams are not in luck. Not too long ago they told the President to use Yemen as a good example of how America is successfully conducting a muscular campaign against terrorists. The trouble is that literally a few days later, out of nowhere, here comes a Shiite insurrection in Yemen led by the Houthis that swept away the (legitimate?) government, supposedly the main anchor of America’s anti al Qaeda very successful campaign.

Bragging a bit too much

What is remarkable here (and truly regrettable) is that the US Government, this time just as many other times in the past, seems completely surprised by this development. Clearly nobody saw this Houthi uprising coming (this group is also known as Ansar Allah, “Partisans of God”); otherwise the White House national security and communications staff would not have suggested that the President would use Yemen –now once again in chaos– as a good example of smart US anti-terror policies that are actually working.

More bragging on the economy

Shifting to the domestic economy scene, just days ago (January 20) the President was really bragging about the economy during his combative State of the Union Speech to Congress. Indeed, recent figures on lower unemployment (now 5.6%) and a surprisingly strong third quarter (with GDP up 5%) seemed to indicate that the US was finally out of the swamps of uncertain growth, with possible relapses into stagnation or worse.

And so Obama bragged, and took credit. “Tonight, we turn the page,” the president said to Congress. “The shadow of crisis has passed,” he added. “The state of the union is strong.” Well, hard to argue with success.

Not true

Except that it is not really so. Just released figures for the 4th quarter of 2014 indicate a rate of economic growth of 2.6%. Not bad, but hardly stellar, and half of the impressive 5% registered in the third quarter. Translation: the third quarter was a blip. We did not keep the momentum.

Besides, if we dig deeper, we see that part of the upward swing in the third quarter was due to much larger government spending (mostly military sales that will not be repeated) that came all at once due to the ending of the federal fiscal year, (September 30), and to extraordinarily large auto sales facilitated by extremely easy financing given by America’s dealers to practically all buyers.

Easy car loans

In fact, this wave of almost zero interest car loans is so large that it has prompted a debate on whether this is in effect a “sub prime auto loans crisis” in the making, since many borrowers will be unable to pay their car loans. Beyond car sales, most of the GDP growth in the third and fourth quarters was due to much higher consumer spending.

And this means credit card spending, because real incomes have not grown. Yes, once again Americans spend money they do not have. This is not the kind of “healthy growth” we really want.

So, all in all, even though these unimpressive 4th quarter numbers are still subject to upward revisions, overall the US economy is not doing great. With an average 2.4% growth for 2014, it is doing OK. However, looking ahead it is hard to keep even this modest consumer-driven rate of growth, because the average American will be unable to go much deeper into debt in order to buy “more stuff”.

The worst recovery

It has been said before, but it is worth repeating. Overall, this is the worst recovery in terms of GDP growth that we have had in decades. And this is so despite the historically unprecedented period of monetary easing, with interest rates at zero and years of QE, or “Quantitative Easing”. In other words, the “stimulus medicine” administered by the US Federal Reserve in massive amounts has not done that much to boost productive investments and new output.

Few high paying jobs

Of course, we should celebrate any new job created. But the truth is that, despite an unemployment rate now down to 5.6%, most of the new jobs created during this recovery are low paying. Far too many of the new positions are part-time.

Various surveys indicate that there are millions of Americans who would like to have a full-time job, but cannot get one. Worse yet, wages are frozen, median income has not grown. Meanwhile, the level of labor participation, that is how many adult Americans are actually employed, has gone down from almost 66% to less than 63%. And this means that millions of unemployed Americans have simply dropped out and stopped looking for jobs they could not get. The unemployment rate looks good because these people are no longer counted.

Look, if we consider the dismal conditions of other advanced economies in most of Europe and Japan, by comparison the US is doing great. But we are doing poorly in comparison to our post war performance.

This is no triumphant come back

In this context of consistent but unimpressive growth, the triumphant tone of Obama’s January 20 State of the Union Speech looks really out of place. Yes, the recession is over. And this is good. But there is nothing miraculous about it. All recessions end.

However, we did not come out of it with a roar. Obama’s point that the good numbers are a demonstration that his policies worked is yet another exaggeration.


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