Economic Progress Under Obama
Barack Obama's first term is not yet over. Still, it’s possible to take a look at the progress of the economy so far using the metrics discussed throughout this website to try to understand how things are really going. The goal of this website was to analyze how the economy has done under each full presidential term. Much of the data needed to give a good retrospective analysis of Obama's first term won't be available until the end of 2013 or early 2014, but enough initial data is already available to analyze our economic progress even at this early time.
First, the total number of jobs lost in the last recession was somewhat unprecedented for the post World War II era. More jobs were lost between January 2008 and January 2010 than in any other period since the end of 1945 (Source: http://bls.gov).
In January of 2008 there were just over 138 million people employed. By January of 2010, that number dropped almost seven percent to just over 129 million. A total of 8.7 million people lost their jobs in just two years! For comparison, in the previous four economic downturns:
-1.2 million people lost their jobs between March and July of 1980 (a 1.3% drop).
-2.8 million people lost their jobs between July of 1981 and December of 1982 (a 3.2% drop).
-1.6 million people lost their jobs between June of 1990 and May of 1991 (a 1.5% drop).
-2.7 million people lost their jobs between February of 2001and August of 2003 (a 2.1% drop)
As you can see from the figure below, more people lost their jobs from 2008-2009 than in the previous four downturns combined!
You have to go all the way back to the end of World War II, when 4.3 million people lost their jobs (an 11.2% drop) because the war ended, for a comparable downturn. In the last 66 years no other recession has come close!
The majority of job losses occurred between September of 2008 and June of 2009 when almost 6.3 million jobs were shed (4.8%). 3.5 million jobs were lost in Obama’s first six months alone! Clearly, Obama was thrown into a very deep hole the day he entered the oval office.
So how have we done since then?
Between January 2010 and September 2012 (the month prior to when this is written) a total of 4.2 million jobs were added to non-farm payrolls with 4.7 million jobs having been added to the private sector. Even though more than 500,000 government jobs have been lost due to State and Local budget cuts, the number of employed are already almost back to where they were in January 2009.
This may not sound like much but, keep in mind: George HW Bush netted only 1.2 million total jobs (265 thousand in the private sector) in his only term and George W Bush lost a total of 13,000 jobs his first term (13,000 fewer people were working at the end of his first term than in the beginning). In fact, 646 thousand fewer people were working in the private sector in January 2009 than January 2001 (See Jobs). And neither Bush began their presidencies with nearly as many job losses.
More people have already been employed in the private sector during Obama's presidency than during the entire eight years under George W Bush! Obama’s first term is not yet complete but it appears that, by next January, he will have made up for a loss that no president since Truman has had to face.
Much of the information that we used in compiling this website was obtained from the Bureau of Labor Statistics (http://bls.gov). Recently, their monthly jobs report has become an important and frequently cited barometer for the strength of our recovery. With this in mind we would like to clarify some of the details on how this information should be interpreted.
The initial report comes out on the first Friday of each month for the previous months jobs and unemployment rate. This means that a detailed report regarding a labor force of almost 150 million people is prepared each month addressing the month that ended only a few days prior. The initial report is obviously a preliminary one and will be revised several times in subsequent months before the final report is given nearly a year later. It should be no surprise that the initial report can sometimes be widely off the mark.
This brings us to the subject of revisions and a rather interesting trend in the revisions on job creation over the last two years. The table below provides the initial report for the net number of jobs created (or lost) for each month of 2010 along with the final revised figure and the net change from the revision (source: bls.gov).
As you can see from the above table, the revisions went both ways for the first eight months of 2010 but, from September on, all revisions were positive. In the end, a total of 225 thousand jobs were added to the initial reports for a net increase of over 30% for all of 2010!
Now lets look at 2011 & 2012 (see Table 2)
Table 2 shows there was only one negative revision in all of 2011 and, so far, two for 2012. So, since September of 2010, a total of 20 of the last 24 revisions have been positive for a net increase of 735 thousand jobs in 19 months! (771 thousand added jobs since January, 2010)
Any number of reasons might be given for why almost all recent initial jobs reports have underestimated the actual number (often substantially) but the fact is they have and so all further initial reports should be read with this in mind.
The trend in the unemployment rate under Obama so far bears an eerie resemblance to that of Ronald Reagan’s first term (see Unemployment). Both Presidents started with a rather high unemployment rate (7.4% in February, 1981, 8.3% in February, 2009). For both Presidents the rate rose substantially in the beginning of their first terms only to drop back down by the end. For Reagan it rose to 10.8% by November, 1982 and then dropped back to 7.3% by the end of his first term. For Obama, it rose to 10.0% in October of 2009, leveled off, then dropped substantially in the last year and a half to where it is now at 7.8%. (see graph)
The Peak under Obama isn’t as high or as sharp as it was under Reagan but the overall trend is very similar. In both cases, the unemployment rate rose sharply in the beginning then dropped later in the terms.
Gross Domestic Product (GDP)
The drop in the GDP From the second quarter of 2008 until the second quarter of 2009 was about as unprecedented as the job losses that occurred at that time. The GDP dropped about $670 billion or just over five percent over four consecutive quarters (source: bea.gov). Again, for comparison:
-The GDP lost 1.4% in the recession of 90-91.
-It dropped 2.7% in the recession of 81-82.
-It dropped 2.2% in the recession from Q1-Q3 of 1980.
-It dropped 3.2% in the recession of 73-75
-In 2000-2001 there wasn’t even a recession (technically). The GDP went down in two nonconsecutive quarters but the drop was only 0.33% for the first quarter of 2001 and 0.28% in the third quarter that same year. (See Graph)
Since then, the economy has advanced at an average rate of about 2.2% per year. Not great, but better than either of the Bushes and almost as good as it was under Eisenhower. (See GDP).
Information on the total national debt is not yet available for 2011 but our guess is it’s going to be pretty substantial. It’s quite likely that the debt increase under Obama’s first term will rival that of Reagan’s first term (see Debt). What hasn’t been discussed much, but should be, is that one of the major causes of the ballooning debt was not so much the increase in federal spending as the drop in federal receipts. When 8.7 million people lose their jobs, that many people won't pay very much in taxes. Add to that the drop in real estate revenue from all of the foreclosures, the drop in capital gains from a stock market crash, etc... you get a substantial drop in revenue at the same time that our government truly needed the money.
In 2007 the federal government brought in $2.57 trillion (source: St. Louis Fed). That amount dropped to $2.1 trillion by 2009. In the last three years of Bush’s presidency (2006-2008) the federal government took in $7.5 trillion. In the first three years of Obama’s presidency, that amount dropped to $6.57 trillion (a 14% drop!). When you get a 14% pay cut the same year that your roof starts leaking, you’re going to run up your credit card.(See Graph)
The recent rate of inflation has been negligible. Prices have gone up an average of 1.6% per year since 2008 which is the lowest it's been in decades. Since interest rates are near zero now and the most effective way to combat inflation is to raise interest rates, it’s unlikely we will see any significant inflation in the foreseeable future. Historically, neither the debt nor the deficit have ever had any significant impact on the rate of inflation in this Country. (See Inflation).
Conclusion: A Tale of Two Bubbles
People often compare the dot com bubble to the housing bubble as though they were similar events. We find this interesting since, outside of their effects on the stock market, the two events couldn’t have been more different. Certainly there was an irrational exuberance driving both markets to their extremes, but that’s where the similarity ends. The dot com boom emanated from the creation of a very new industry that brought major changes to our entire society in under a decade and is still very much with us today. The housing bubble was based on a completely false assumption that, in the end, brought financial ruin to large segments of the world population whether or not they played any role in the market while it was rising.
Even though the internet has only been around for less than two decades, it’s already hard to imagine a world without it. In ten short years the internet changed our society about as much as telephones and television combined did in fifty years. It made vast amounts of information easily and instantly available to anyone with a computer and a phone line. It greatly increased both domestic and international commerce and brought the world together as it had never been before. In doing so, it also created about 22 million jobs and spawned whole new industries that wouldn’t have been imagined a few years prior.
When the bubble “burst” in late 2000, the internet didn’t go away. It’s true that the Nasdaq lost about 70% and the Dow about 40% of their peak values over the next two years. Also, a number of people (and a few major corporations) that expected too much too soon from the internet went bankrupt. But apart from people who bet more than they could afford on an industry they didn’t understand, most people outside of the tech industry barely noticed the downturn. Of the 22 million jobs created between 1993 and 2001, a little more than ten percent were lost in the pullback. Afterwards, the internet continued to grow and evolve, but at a more realistic pace. The industry and its advantages never left or even shrank; only the irrational exuberance that drove up the stock prices went away.
The housing bubble was a far more insidious and destructive event in every aspect. It was an entire economy fueled by the building of houses nobody needed, selling them for money that didn’t exist and leveraging this alleged money for the appearance of incredible wealth that had no basis in reality whatsoever. It was in every way a make believe economy. When it finally collapsed the destruction left in it’s wake permeated nearly every aspect of the world economy and few people could escape its disastrous effects even if they tried to avoid them in advance.
Virtually every job that had been created since the Summer of 2003 (i.e. every job created during Bush’s presidency) had vanished by January 2010! Entire nations went bankrupt and many people who played no part in speculating on housing values found that their houses had lost much of the real value because so many people in their neighborhood did play the market and ended up in foreclosure.
It’s no exaggeration to call 2001-2010 the “lost decade”. It wasn’t just lost because of the economic hardship it brought. A large portion of our society had abandoned all realistic pursuits to chase after illusory wealth they believed could be created out of thin air. In doing so, it led our society to drift sideways for nearly a decade and, when it all finally fell apart, we had little to show for the ten years that had passed. Obama took office in the middle of the greatest economic free fall in about three generations. Whether you believe his policies helped is not important. What matters is the understanding that, by the time he took office, we needed to come back, not just from a financial calamity, but also from being off course for years.
In a sense, Truman had a much easier job. When World War II ended, millions of people in the war industry were suddenly out of work. However, entire Continents had been destroyed by the war and needed rebuilding. At the time, we were the only ones available for the job so redirecting all of those newly unemployed workers was far less difficult. Now, the challenge is to find entirely new and innovative industries in which to branch out in a world that provides very stiff competition at all levels. This after a decade of doing little more than chasing make believe money. Well, at least we still have the internet to help us face this challenge.