WASHINGTON, December 21, 2014 — For the fifth consecutive year, the U.S. GDP has been forecast to grow by more than 3 percent. And for the fifth consecutive year, it will grow by just over 2 percent. Economists could refer to this as a “growth recession” that should have ended years ago with a period of strong expansion, but didn’t. What went wrong?
Technically a recession occurs when real GDP declines for two successive quarters. Although we saw GDP decline by more than 2 percent in the first quarter of 2014, the second and third quarters saw growth averaging about 4 percent, although the rate slowed from the second quarter to the third.
The fourth quarter will likely see growth in the 2.5 percent range, a slowdown from the third quarter. This means for the entire year, growth will average slightly above 2 percent, so we are not in a recession.
However, when the growth rate in the economy is just slightly above the rate of population growth, unemployment could increase as the economy grows, which explains the term “growth recession.” But hasn’t the unemployment rate fallen?
Yes it has, but not because growth in the economy yielded many new full-time jobs. The unemployment rate fell primarily because fewer people looked for jobs. Today less than 63 percent of the adult population is in the labor force. Historically the figure is near 67 percent. The 4 percent difference amounts to more than 6 million adults who have dropped out of the labor market. If those people stayed in the labor market, the unemployment rate would be about 10 percent.
What about the President’s claims that we added more jobs in 2014 than in any year since 1999?
That’s true. And it is also true that the economy has added jobs in 57 consecutive months, almost 5.7 million jobs in total. But the number of jobs is very low compared to past recoveries. After President Reagan instituted his long term, high growth policies, the economy added more that 16 million jobs while Reagan was in office. Then after a minor recession in 1991, Reagan’s policies continued to add jobs as President Clinton followed similar actions. During Clinton’s term in office, the economy added over 22 million jobs.
Today there are about the same number of people employed as we had before the recession began. In other words, it has taken President Obama’s policies almost six years to recover the number of jobs lost because of the recession. This is a very poor showing.
When Obama was elected, his initial actions when he had a majority in the House of Representatives and a super majority in the Senate were to concentrate on an ill-advised stimulus plan and passing the Affordable Care Act. Neither of these actions stimulated the economy and may have actually caused harm.
The stimulus plan was supposed to provide “shovel ready” jobs. Later the President admitted that the jobs “were not as shovel ready as we thought.” The nearly $1 trillion stimulus package did virtually nothing to help the economy grow, although it did provide bailouts for various businesses and other entities.
The Affordable Care Act burdened the economy, and because of the yet to be fully implemented provision that employers provide health insurance for any employee working more than 30 hours per week, companies were reluctant to hire new full-time workers. Instead many companies reduced employee hours from 40 per week to below 30 and made up the difference by hiring more part-time workers, giving the appearance of adding jobs.
Economists are again forecasting growth in excess of 3 percent for 2015. We would like to see growth higher. Our hope is that forecasters are correct and the economy finally starts to grow at a high enough sustainable rate to attract workers back into the labor market, really reduce the unemployment rate, and most importantly, provide real opportunity. It’s about time this happened, although with the mandates in the ACA kicking in by January, the burden may again result in a continuation of Obama’s growth recession.