Charles Franklin | July 30, 2010
Today's GDP numbers provide little comfort to Democrats hoping a robust "recovery summer" will aid them in November. GDP grew at an annual rate of 2.4% in the second quarter, down from 3.7% in the first quarter and 5.0% in the 4th quarter of 2009.
The GOP will point to falling growth as proof of Democratic failure, and discouraged Dems who have had a hard time selling even real gains are unlikely to successfully use this latest report to their advantage.
But as always, let's take a moment for some perspective based on the data from the four recessions since 1980.
President Reagan benefitted from very large growth rates in the four quarters following the end of his recession. Like Obama, Reagan inherited a terrible economic situation, and suffered from it throughout his first two years in office. But beginning in the fourth quarter of 1982, GDP growth rebounded very strongly. Over the next four quarters, real GDP grew an average of 5.7%. If we leave out the fourth quarter of 1982, which had a tiny +0.3% growth though technically not part of the recession quarters, then Reagan enjoyed an astonishing average GDP growth of 7.8%, providing the foundation for his "Morning again in America" reelection campaign in 1984.
The two Bush presidencies did not enjoy recoveries of anything like that of Reagan. President G. H. W. Bush suffered from just a 2.6% average growth rate in the four quarters following the 1991 recession, though the rate bumped up to over 4% more than a year after the end of the recession. That sluggish initial recovery set the narrative President Clinton used in the 1992 campaign, even through growth in 1992 was a robust 4% or more.
President George W. Bush likewise faced slow growth following the 2001 recession, with average growth of only 2.3% in the four quarters after the recession. While 9/11 undoubtedly affected the fourth quarter of 2001 (1.4% growth), the next three quarters were 3.5%, 2.1% and 2.0%, followed with a fifth quarter of just +0.1% which is not included in the average. Excluding the post 9/11 quarter and including the later quarter would lower the average growth even more.
Which brings us to President Obama. In the four quarters since the end of the recession (as defined by the end of shrinking GDP in 2009Q2), real GDP has grown an average of 3.2% each quarter. So in fact, the current recovery is a bit stronger than either of the two under Presidents Bush, though well below the extremely strong rate under President Reagan.
Even the current disappointing quarter at 2.4% is better than the average of 2.3% in 2001-2.
So a rational perspective would be that we are recovering better than in the previous two recessions, which were much less dire than the Bush-Obama recession, but well short of the energy that propelled the Reagan recovery.
For November, this rate of growth does not bode well for changing the narrative from recession to recovery, as the White House had no doubt hoped and bet on. The trend of declining growth rates over the past three quarters adds to worry that recovery will be slow or even threaten to dip back into recession. Ironically, of course, a stimulus that might enhance the macro-economy is now politically untenable as even many Democrats have accepted Republican arguments that stimulus spending didn't and doesn't work. Decades of macro-economic evidence to the contrary notwithstanding.