The U.S. economy grew modestly over the summer after nearly stalling in the first six months of the year, lifted by stronger consumer spending and greater business investment.
The Commerce Department said Thursday that the economy expanded at an annual rate of 2.5 percent in the July-September quarter. That’s nearly double the 1.3 percent growth in the April-June quarter, and a vast improvement over the anemic 0.9 percent growth for the entire first half of the year.
We will need growth of around 4% to see the unemployment rate come down. At first we can actually expect it to increase as discouraged workers who have given up looking for work begin to look again. They will then be classified as unemployed. It seems contradictory that the economy can be growing and more people working while unemployment increases, but it’s only a bean-counting contradiction. In reality, the total number of people who are not working (over 14 million) will decrease while those classified as unemployed will increase. The former is far more important.
How will this impact the elections next year though? Whoever is blamed for the economy will lose the election, and both parties know this.
In August, many thought the economy was headed for another recession after the government said GDP fell to less than 1 percent for the first six months of the year. High gas prices, the growing debt crisis in Europe and wild fluctuations in the stock market also contributed to those fears, which have receded in recent weeks after reports showed improvements in hiring and consumer spending.
Economists expect growth in the range of 2.5 percent to 3 percent in the October-December quarter and for all of next year — just enough to keep the unemployment rate from rising.
For the 14 million people who are out of work and want jobs, that’s discouraging news. And it’s an ominous sign for President Barack Obama, who will be facing voters next fall.
“We are looking at very disappointing growth over the next year. It will be far short of what is needed to get businesses to hire more aggressively,” said Mark Zandi, chief economist at Moody’s Analytics.
(As an aside, in the first paragraph “the many” are economists. They were wrong with their August predictions. The second paragraph gives their latest predictions. Why do we still believe them when they give such specific numbers with confidence? But I digress.)
I do think the economy will continue to grow at higher than “anemic” rates. I doubt it will be high enough to really dent the unemployment rates and boost Obama in 2012, especially if the unemployment rate increases while total unemployment decreases as mentioned above. It is very simple to understand, but a hard political sell in a campaign culture of gotcha moments and twenty-second soundbites. Regardless, if the economy tanks Obama is done. If the economy continues on its current path he’s in trouble. They are praying for an econmic miracle.
Thoughts on the Passing Scene 