In January, Barack Obama and Democrats insisted that the 5.7% annual growth rate in the fourth quarter of 2009 showed that their stimulus plan had set the American economy back on track for rapid growth and job creation. The administration needed a big number for 2010 to allay fears that unemployment would stagnate at the current high levels for the long term. Unfortunately, they didn’t get it, with the 3.2% annualized GDP rate for the first quarter of 2010 falling below analyst expectations:
The U.S. economy grew at a 3.2 percent annual rate in the first three months of the year, evidence that the economic recovery continues to plug along but that growth is not accelerating in a way that would bring down joblessness rapidly.
The first-quarter gain in gross domestic product represents a deceleration from the 5.6 percent pace of growth in the final months of 2009, and is a bit below the 3.5 percent growth analysts were forecasting.
Neil Irwin at the Post manages to avoid using the word “unexpectedly” as part of his report. Maybe the Associated Press will employ its favorite adverb?
The news was not all bad. Unlike the last measure, this GDP result didn’t come from substantial inventory adjustments, but from actual consumer activity. Americans increased their consumption by 3.6% in the first quarter, which may indicate that families have adjusted to employment levels at the moment. Businesses invested in their equipment, increasing their spending by over 13% on an annualized basis.
The good news, however, doesn’t outweigh the bad. The last time the US suffered this kind of recession and unemployment, in 1982, it took several quarters of annualized growth of between 7%-9% in order to generate sufficient numbers of jobs to seriously lower unemployment. The long-term trend of the American economy is growth between 2.5-3%, which makes the 2010Q1 result barely a blip above average. It indicates that the current job situation may well become the “new normal,” with high unemployment remaining in place for years to come.
We will not see the kind of growth necessary to put people back to work until the government stops sending pricing signals of higher taxes and more burdensome regulation regimes. Capital will not flow back into the market under the conditions set by the Obama administration and the Democratic Congress over the last fifteen months. Instead, it will most likely flow overseas, in markets more friendly to capital investment, where the nation’s executive doesn’t offer off-the-cuff remarks about people making too much money.