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Economy Starts Year Badly; Grows Only 0.5% in 1st Quarter

The Wall Street Journal's Jeffrey Sparshott starts his front-page, above-the-fold report on Friday (behind WSJ paywall) this way:

"A sharp pullback in business investment and weak global demand dragged down an already-lackluster U.S. economy in the opening months of 2016, the latest setback in a bumpy expansion entering its seventh year.

"Consumers and the housing market kept the U.S. from sliding backward, though only barely. Gross domestic product, the broadest measure of economic output, advanced at a 0.5% seasonally adjusted annual rate in the first quarter, the Commerce Department said Thursday. That marked the economy’s worst performance in two years."

Sparshott added that corporate executives and economists blamed "turmoil across global financial markets" early in the year. He also wrote the first quarters of 2014 and 2015 were followed by a rebound. In addition, he noted the Fed "hasn't budged on interest rates since December (2015) when it raised its benchmark for the first time in nearly a decade," adding the Fed had backed-off raising the rate a full percent in 2016.

On page A2, the Journal included a very informative chart showing GDP changes in various sectors of the economy. For example, while overall GDP increased only 0.5% in the first quarter, business investment decreased 5.9% for the quarter; consumer spending on goods increased 0.1%; exports decreased 2.6%; consumer spending on services increased 2.7%; and, residential spending increased 14.8%. Federal government spending decreased 1.6% while state and local government spending increased 2.9.%.

The GDP numbers are prepared by the U.S. Commerce Department's Bureau of Economic Analysis (BEA), which you can find here.

In a front-page story in Friday's Washington Times, Dave Boyer's lede was, "The White House labored Thursday to explain a first-quarter economic report showing the weakest growth in two years, even as President Obama was trumpeting his mastery of the economy in a New York Times Magazine interview." He went on to write:

"Private economists said the first quarter number was uninspiring, although the economy remains on track for at least modest growth this year.

“The economy essentially stalled in the first quarter, but that doesn’t mean it is faltering,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania, told the Reuters news service. “Some of the restraints to growth are dissipating. Growth is likely to accelerate going forward.”

"But Nariman Behravesh, chief economist at IHS Global Insight, said the GDP number pointed up a major factor in the role the economy will play in November’s presidential race.

“Why is it that voters are feeling so blue when we have an economy that is close to full employment?” he said. “Part of the problem is a divide between people with college degrees who are doing fairly well and people with high school degrees who are not doing so well.”

Boyer included the following discussion to debate President Obama's economic record:

"The first-quarter number presented a political and PR problem for the White House, coming just as President Obama appeared to be trying to burnish his own legacy overseeing the economy since the global financial crisis of 2008.

"The president told a group of college journalists Thursday that his record on the economy is among his proudest achievements.

“I’m proud about the work we did to save the economy,” Mr. Obama said. “Right after we came in, we were in a free fall and could have experienced a worldwide depression.”

"He expressed a similar view while discussing his legacy last week with British youth, boasting, “Saving the world economy from a great depression, that was pretty good.”

"The president also urged the budding journalists to write “good stories” about the government, using his administration as an example.

"It is very hard to get good stories placed,” Mr. Obama said. “People will assign you stories about what’s not working. It’s very hard for you to write a story about, ‘Wow, this thing really works good.’”

"In an interview with The Times’ magazine, Mr. Obama said he believes the U.S. economy is in better shape than Americans appreciate.

“I actually compare our economic performance to how, historically, countries that have wrenching financial crises perform,” the president said. “By that measure, we probably managed this better than any large economy on Earth in modern history.”

"In the magazine interview Mr. Obama expressed frustration by the suggestion from Republicans that the economy is faltering under his administration.

“I mean, the truth of the matter is that if we had been able to more effectively communicate all the steps we had taken to the swing voter, then we might have maintained a majority in the House or the Senate,” he said.

"The president also believes his administration could have helped more people if he had sold his policies more effectively.

“The fact of the matter is that our failure in 2012, 2013, 2014 to initiate a massive infrastructure project — it was the perfect time to do it: low interest rates, construction industry is still on its heels, massive need — the fact that we failed to do that, for example, cost us time,” Mr. Obama said. “It meant that there were folks who we could have helped and put back to work and entire communities that could have prospered that ended up taking a lot longer to recover.”

"The missed opportunities, he said, 'keep me up at night sometimes.'"

Boyer also wrote, "There are some hopeful signs for the economy: The dollar’s rally appears largely over, oil prices are firming up, and the bulk of the inventory liquidation is out of the way. In addition, the jobs market remains fairly robust."

At the Washington Post's Wonkblog on Thursday, Chico Harlan reiterated the point made above by the WSJ that residential investment was the bright spot in the 1st quarter GDP report. According to Harlan:

"If there was a bright spot, i(t) came in the housing sector, where real residential fixed investment — a measurement for building and remodeling — rose 14.8 percent during the quarter. In a post on the White House web site, Jason Furman, chairman of President Obama’s Council of Economic Advisers, said that the demand for homes was being driven by job growth and relatively low mortgage rates. Household formation was still relatively low compared with historical trends, he said, and had further room to grow."

On Friday, the Wall Street Journal (behind WSJ paywall) tucked the following barb into an editorial:

"President Obama didn’t comment on the first quarter, but the New York Times rolled out an interview with him Thursday, part of a larger apologia for his economic record, in which he offered this beauty: “I actually compare our economic performance to how, historically, countries that have wrenching financial crises perform. By that measure, we probably managed this better than any large economy on Earth in modern history.”

"Mr. Obama has already compared himself favorably to every President except Lyndon Johnson, FDR and Lincoln, so why fake humility in his home stretch?

"The reality is that the first quarter is further evidence of what has been the weakest economic expansion in the postwar era. The 0.5% growth is subject to revision but it follows 1.4% in the fourth quarter. Growth over the last six months has averaged about 1%, and under 2% over the last 12 months. The usual definition of recession is two consecutive quarters of negative growth, which we barely ducked."

Investor's Business Daily (IBD) posted two editorials on Thursday for their Friday paper edition. One editorial focused on the President's boasts "about his economic record." According to IBD:

"The only real problem with the economy, as far as Obama is concerned, is that he hasn’t been selling his successful policies aggressively enough.

“We were moving so fast early on that we couldn’t take victory laps. We couldn’t explain everything we were doing. I mean, one day we’re saving the banks; the next day we’re saving the auto industry; the next day we’re trying to see whether we can have some impact on the housing market,” he told the Times’ Andrew Ross Sorkin.

"Never mind that Obama didn’t “save” either industries. Obama’s only contribution to GM and Chrysler’s bankruptcy process was to protect union interests at taxpayer’s expense. Dodd-Frank didn’t save banks; in fact it’s killed multitudes of community banks. His stimulus was a massively expensive bust.

"The rest of Obama’s boasts aren’t on any firmer ground.

"Obama talks about 14.4 million new jobs since 2010, without noting that working age population grew by 15.8 million over those same months.

"He touts the 5% unemployment rate, but fails to mention that it would be more like 10% if millions of Americans hadn’t given up looking for work altogether."

The second IBD editorial focused more on economic growth. In it, IBD starts by asking:

"So why aren’t businesses investing? First, is rotten policy decisions. We’ve raised investment tax rates under Obama — capital gains, dividends and income taxes on profits — so the after tax returns on business investment are lower. Investment taxes are up by as much as 60% since the end of the George W. Bush years (from 15% to 23.8%). As Arthur Laffer has taught us over and over: tax something, and you get less of it.

"Regulations, like Dodd-Frank are suffocating businesses, as are the rules and mandates under ObamaCare. Energy capital spending has collapsed, mostly due to the free fall in oil and gas prices. It doesn’t help that Obama has declared war on fossil fuels, through EPA strictures and anti-America international accords like the Paris climate change agreement. Hillary has practically boasted to her green billionaire friends that he won’t rest until America’s oil and coal industries are dead. Republicans should tell voters they care more about good jobs here in America than the purely theoretical rise of the oceans.

"The latest dismal economic numbers should put an end to Obama’s insulting cheerleading on a limp economy. More than 80% of voters in primary exit polling say that the economy and jobs are their main concerns, and that is a reflection of a real economy that can’t seem to get its mojo back. After a decade of flat wages, voters are financially stressed out.

"Yet, though the economy stinks, the GOP talks about anything but the economy. The GOP needs to present a growth agenda."

Elsewhere on the Internet, the Washington Examiner's Joe Lawler reported on the 1st quarter GDP, saying the economy began 2016 by suffering the "worst quarter of growth in two years." At the Washington Free Beacon, Ali Meyer also wrote about the BEA's "advance estimate" of the GDP, noting the "second estimate" for the first quarter of 2016 will be released on May 27.

And while you're thinking about the economy and jobs, take a few minutes to write to a member of Congress. Contact information is available at the Library of Congress' Thomas (use left-hand column). Taxpayers living in Virginia's Arlington County can contact:

  • Senator Mark Warner (D) -  write to him or call (202) 224-2023
  • Senator Tim Kaine (D) -- write to him or call (202) 224-4024
  • Representative Don Beyer (D) -- write to him or call (202) 225-4376

And tell them ACTA sent you.

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