In 2009, during the heart of The Great Recession, 86% of votersbelieved that the country’s dire economic state was the most important issue. Now, in 2015, that number is down to 33%. Clearly, the economy has improved since the horrors of economic crisis first hit America. Unemployment is now at 5.5% from its peak of 10% in late 2009. The Dow Jones Industrial Average, S&P 500, and NASDAQ continue to reach record high numbers. The federal deficit has shrunk from 12.1% of GDPin FY 2009 to just 2.4% in FY 2014. And finally, the US economy grew at 2.4% last year, (including 5% in Q3 of 2014) the highest growth rate since the beginning of The Great Recession.
So what do these numbers really mean? Has the economy really improved as much as the data suggests? Let’s examine the changes in unemployment, the stock market, deficit/debt spending, and economic growth since President Barack Obama assumed office.
How Has Unemployment Changed?
During Barack Obama’s first 13 months in office, the economy lost 4.3 million jobs. In the 12 months prior to him taking office, 4.4 million jobs were lost. As of June 2014, all of the jobs lost in The Great Recession had been recovered. And since June 2014, the United States economy has added an additional two million jobs to the economy. The unemployment rate, as I mentioned earlier, is down to 5.5%.
On the surface, this number is very impressive. It essentially indicates that the economy has returned to full employment. However, this isn’t the full story. The Bureau of Labor Statistics conducting monthly surveys to approximately 60,000 householdsto the United States calculates the unemployment rate. In their survey, they ask if the individual is currently employed, seeking employment, or not seeking unemployment. The unemployment rate is calculated as those seeking employment divided by the sum of the currently employed and seeking employment.
It doesn’t take into account the labor force participation rate. The participation rate measures the percentage of able-bodied working people (anyone over the age of 16 in the United States) who participate in the labor market. Participation is defined as being currently employed or actively seeking work. If you are not actively seeking unemployment, you are not part of the labor force. Therefore, one possible way to measure the amount of people who have given up looking for work is to measure the labor force participation rate.
When Barack Obama took office in January of 2009, the labor force participation rate was 65.7%. As of March 2015, the labor force participation rate was 62.7%. It has declined by 3% since he took office. This has often been a talking point on the right. Whether it’s Reince Priebus or Lindsay Graham, they warn the American people not to be fooled by the declining unemployment rate. They say the real reason behind declining unemployment is the declining labor force participation rate. Essentially, Obama’s economy has become so bad that able-bodied working class Americans have just given up looking for unemployment.
While it’s certainly true that part of the decline in the labor force participation rate is due to people dropping out of the labor market, the majority of the decline in the labor force participation rate is due to changing demographic trends: primarily, the aging populations and increased retirement of baby boomers. The Congressional Budget Office released a report in February 2014 which stated that about half of the labor force participation rate is explained by changing demographics and retiring baby boomers. The other half is the result of a sluggish recovery, though.
The Federal Reserve released a report on the labor force participation rate and they came to a similar conclusion, except they estimate that 65% of the decline in the labor force participation rate can be attributed to changing demographics.
Change in the Stock Market
The Great Recession truly started on September 15, 2008 when the stock market plummeted in the wake of Lehman Brothers going belly-up. The Dow fell 504 points in one day. The Dow continued to fall from 11,416 on September 15th, 2008 down to 6,594 on March 5, 2009.
When Barack Obama took office in January 2009, the Dow Jones was sitting at 7,949 points. As of April 8, 2015, the Dow Jones was at 17,902 points. In total, therefore, the Dow Jones has increased 10,000 points since Obama took office. The Dow has grown 125%.
Other composite indexes show tremendous growth under President Obama as well. The S&P 500 has grown 156% and the NASDAQ is up over 225% since the day Obama took office.
Debt and Deficit Spending
The Federal Debt under Barack Obama has grown a lot, to say the least. For his first four years in office, the government ran deficits of over a trillion dollars each year. The Great Recession led to lower revenues for the federal government and simultaneously, President Obama passed an $800 billion stimulus package immediately after he took office.
The deficit though has been shrinking considerably in the last few years, as the economy picks up speed and tax revenues continue to grow. In the last fiscal year, the deficit was only $458 billion, or 2.4% of GDP.
Although the public debt sits at around $18 trillion, which sounds like an absurd number, it’s actually relatively manageable when you consider the size of the economy. The most important metric to consider when measuring debt is debt-to-GDP ratio. Currently, the United States’ debt-to-GDP ratio is 106%. This is still a manageable number. For example, Japan’s debt to GDP ratiois 226%. Greece, Italy, Portugal, and Singapore also all have higher debt-to-GDP ratios than the United States. That being said, it’s in the interest of the United States to not go much higher than 106%.
As long as the economy grows at a faster rate than the deficit, the debt-to-GDP ratio will shrink. Last year, the deficit was 2.4% and the economy grew at a rate of 2.4% so the debt-to-GDP ratio didn’t increase.
The debt-to-GDP ratio will likely increase though as we move into the future because after 2016, the CBO predicts the deficit will start to increase again. The bulk of the baby-boomers are about to hit retirement and somebody has to pay for those medical bills. If the government does not raises taxes or cuts spending in the next few years, deficits are going to increase again.
A recession is generally defined as a fall in GDP for two consecutive quarters. Conversely, a recession is over when there is two straight quarters of growth. Technically speaking then, The Great Recession technically ended in June 2009.
So under President Obama, the economy has actually grown a considerable amount. It started off rocky for him in 2009. In that year the economy actually contracted 2.8%. Since then, though, the economy has grown quite a bit: 2.5% in 2010, 1.6% in 2011, 2.3% in 2012, 2.2% in 2013, and 2.4% in 2014. These figures are below the historical average of 3.27% growth between 1947 and 2014, but good compared to growth in other developed countries around the world in the last five years.
For 2015 and 2016, the CBO projectsthat the economy will grow at roughly 3%. If this prediction comes into fruition, then seven out of the eight years of Obama’s presidency will have been accompanied with solid economic growth.
The economy has done relatively well under Barack Obama. For most of this article, I’ve highlighted the good aspects of the economy. But there are some bad aspects as well. For example, income inequality has actually gotten worse under President Obama. Granted, this a trend that has been occurring in the United States since the late 1970’s, but this is an area that Barack Obama has tried to fix. So far, he has not succeeded.
Also, while Obama has said multiple times that he would like to lower the corporate tax rate, he has not managed to do so. Corporate taxes are far too high in the United States, and we have seen many countries invert the location of their national headquarters to tax-friendly countries like Ireland to avoid paying corporate taxes in the United States.
So What Does This All Mean?
The economy under the presidency of Barack Obama has performed well. However, the economy is a beast of its own. Just because the economy has shown positive growth under Barack Obama doesn’t mean he is directly responsible for it. I’m not saying he hasn’t done a good job, but rather that correlation does not prove causation. The real question is: how much have Barack Obama’s policies contributed to the growth of the economy since The Great Recession? Now, that is a subject for much more debate…
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