Obama's 8-year economic legacy: A mixed bag
Amid the economic horrors of 2008, Barack Obama ran for president with the slogan: “Change we can believe in.” Given the nation’s dire state as it descended into the Great Recession, this was a much less stirring call to arms than John F. Kennedy’s “Let’s get the country moving again” and Donald Trump’s “Make America great again.”
In dollars and cents terms, President Obama’s record parallels his mild campaign slogan eight years ago: solid but unspectacular. The economy at large has recovered, with GDP and many other measures showing reassuring, if slow, growth.
Nevertheless, while the median household income is expanding again, it still trails the 1999 all-time record. Only the stock market has shown blowout performance, with the S&P 500 recovering from its cruel losses during the financial crisis and exceeding its June 2007 peak by a third.
In Mr. Obama’s final economic report, issued late last month, he gave himself high marks, writing: “By nearly every economic measure, America is better off than when I took office.” Intent on burnishing his legacy before Mr. Trump takes office Jan. 20, the president noted that the U.S. since early 2010 has logged the longest streak of job growth, with unemployment dropping by more than half, to 4.6 percent.
Surely, presidents have an influence on the nation’s economic life, yet they’re far from the deciding factor determining its fate. “It’s very hard for the president to even have an impact on the economy directly,” said J.C. Bradbury, an economics professor at Kennesaw State University in Georgia, in an interview on Freakonomics Radio last summer. “And especially when much of what goes on in the economy is determined by market forces.”
Lagging household income, a key piece of the economy, illustrates just how difficult it is for presidents to move the needle. The stock market takes its cues from how it collectively believes the economy will fare, and presidents have at best a tangential affect on market gyrations. Since Mr. Trump’s election, stocks have leaped on expectations he’ll juice the economy, regardless of whether that faith is justified.
Here’s how America’s economic picture has turned out on Mr. Obama’s watch:
GDP growth. In terms of longevity, the present expansion is a thing of beauty. The average length of the 10 previous spells of GDP growth was 60 months, but the current one is 91 months and counting, by the reckoning of economist Hugh Johnson, who runs his eponymous investment firm in Albany, New York.Mr. Obama spurred growth in the early days of his administration by enacting a $787 billion stimulus program and saving the U.S. auto industry with a $62 billion infusion of capital. But, Johnson said, the bigger boost came from the Federal Reserve under Chair Ben Bernanke, who yanked short-term interest rates to near zero and launched massive purchases of bonds to pump money into the financial system and hold down long-term rates.
Regardless, Johnson maintained, Mr. Obama can take some credit for the economy adding 15.4 million jobs and for drastically lowering the unemployment rate from the 10 percent level it hit six years ago. “These numbers are far from shabby,” Johnson said.
At the same time, an argument can be made that Mr. Obama’s predecessor, George W. Bush, had a role in the recovery, or at least his Treasury secretary, Henry Paulson, did. Of course, some blame Mr. Bush’s more relaxed view of financial regulation for promoting the crash in the first place. But Paulson and his lieutenants were the ones who instituted massive bailouts of ailing banks that prevented a huge collapse.
Aside from the personalities involved, the economy’s comeback under Mr. Obama also is a matter of luck. “Obama started from a very low base,” so the recovery looks dazzling as a result, said Dan Genter, head of asset manager RNC Genter Capital Management in Los Angeles.
Nonetheless, by the numbers the rebound has been anemic, with annual GDP growth around 2 percent. Along the way, the economy encountered some maddening oscillations. The pattern often was poor quarters early in the year and stronger ones later, which gave way to new disappointments the next year.
In 2016’s third quarter, ending Sept. 30, the annual growth rate hit 3.5 percent, up from 0.8 percent in the first period and 1.4 percent in the second. But the forecast for the entire year is a blah 1.5 percent, down from 2015’s 2.6 percent. Part of Mr. Trump’s voter appeal was his promise to accelerate the rate to 4 percent.
Household incomes. A key to the election was that many Americans thought the modern economy’s blessings had passed them by. Manufacturing jobs disappeared due to automation and jobs exported to cheaper locales overseas. A lot of job growth now is concentrated in lower-paid service occupations. How successful has Mr. Obama been in reversing this trend? From the evidence, just a little bit.
Starting in 1980, the nation’s share of total income for the top 1 percent of earners began climbing until it had almost doubled in 2010 (to 20.1 percent from 10.7 percent), and the gap stayed wide from then on, research by economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman indicated. Meanwhile, the bottom half of earners saw their portion slide to 12.5 percent from 19.9 percent. In 1980, the top 1 percent made 27 times as much as the bottom half; by 2014, the differential was 81 times.
A tepidly growing economy has led to muted corporate revenue growth, and that has translated into employers cutting costs -- usually meaning shrinking headcount, said economist Gary Shilling, head of a financial firm in Springfield, New Jersey.
Focusing on such inequality, however, does ignore efforts Mr. Obama has made to aid lower-income Americans. Jason Furman, head of the president’s Council of Economic Advisers, argued in a Washington Post op-end article that Mr. Obama’s increases in tax credits for the bottom fifth of the population was a huge boon, providing breaks for earned income, child care and college costs.
Further, Obamacare has granted health insurance to more than 20 million people who never had it before, with many paying very little because of government subsidies.
And indeed, after a long lull, median household income -- the point where half of Americans are above and half are below -- finally began nudging up in 2015, by 5.2 percent, to $56,516, the U.S. Census Bureau reported. And the official poverty rate dipped to 13.5 percent from 14.8 percent the year before.
That said, 2015’s inflation-adjusted income was still 1.7 percent lower than in 2007, right before the recession occurred, and 2.4 percent below the 1999 peak.
Stock prices. Here again, the market on Mr. Obama’s watch has benefited by fortunate timing. With occasional hiccups, equities have climbed since their March 2009 bottom, shortly after his inauguration. Helping out are low interest rates, which reduce borrowing costs for companies seeking to expand through internal growth or mergers.
Even more important, ultra-low interest rates resulted in lower yields on bonds, which have made stocks attractive, especially dividend payers. For that, economist Shilling said, investors can thank the Fed, not Mr. Obama.
Presidents can help set the tone psychologically, asset manager Genter said. “They have influence over sentiment and confidence.” If so, how has that worked out under the Obama administration, compared to other presidents?
Measuring the performance of the Dow Jones industrials index starting in 1900, Bespoke Investment Group found that Mr. Obama came in third, at a 12.3 percent annual return. The best showing was under Calvin Coolidge’s one term, during the Roaring Twenties, at a 25.5 percent annual return. Then came Bill Clinton at No. 2, with 15.9 percent, and No. 4 Ronald Reagan, 11.3 percent.
The downside for the average person is that it’s the wealthier Americans who predominantly invest in stocks. “The stock market is not the economy.” Shilling said.
Mr. Obama in his economic report contended that during his two terms, “our country has come back from a once-in-a-lifetime economic crisis and emerged stronger.” While Mr. Trump has disputed this assessment, there’s little doubt that he’s starting his administration with the economy far better off than Mr. Obama did.