Fact Checking President Obama's Economic State of the Union
Ah, the State of the Union--that time-honored tradition where Presidents proclaim how great our country is while Congress cheers on cue and the Veep and House Speaker occasionally forget they're on camera, too. It's also a time when statistics, opinions and theories are trotted out as fact and used as the basis for policy proposals.
Usually, the proposals go nowhere. But the broad picture of America the president paints can skew Americans' perceptions of their country--particularly when it comes to the economy. This is especially true when you consider politics can stir emotion and bias, blinding investors to the fact their politician of choice may not have delivered a precise view of America's economy. And that's for either party! Most elected officials' ideology and political (i.e., fundraising) interests get in the way. As we've often said, bias is deadly. That's why it's important to set aside the pomp and circumstance and look squarely at the "facts" presented--and how they square with reality. So, let's take a look--how does the purported state of our union reflect reality?
Tonight, this chamber speaks with one voice to the people we represent: It is you, our citizens, who make the state of our union strong.
True! Annual output is at all-time highs and rising, with all sectors contributing. Innovation and technological development are driving amazing gains in energy production, industry and even the services we provide--and it's all thanks to the driving spirit, creativity and hard work of the American people. U-S-A! U-S-A!
And here are the results of your efforts: the lowest unemployment rate in five years ...
True! Total employed workers are also at a five-year high, and at 154.9 million, the civilian labor force is only 885,000 off its all-time high (which it hit in June 2013).
... a rebounding housing market ...
Yep! Home sales, prices and construction are all rising.
... a manufacturing sector that's adding jobs for the first time since the 1990s ...
Not quite. According to official data, total manufacturing jobs peaked in March 1989 at 18.06 million. They fell throughout 1990, 1991 and 1992, then grew (overall and on average) through April 1998, when they hit just below 17.64 million. That's when the prolonged decline started, and it lasted until January 2010, when manufacturing jobs bottomed at 11.46 million. They've risen irregularly since, finishing 2013 at 12.03 million.
... more oil produced at home than we buy from the rest of the world, the first time that's happened in nearly 20 years ...
True. According to the Energy Information Administration, U.S. crude oil production averaged 7.7 million barrels per day in October 2013, topping the 7.6 million barrels per day in imports-the first time since February 1995 that monthly production exceeded exports.
... our deficits cut by more than half ...
True. In fiscal 2009, the deficit peaked at $1.41 trillion--largely due to the TARP bailouts and fiscal stimulus. In fiscal 2013, with those one-offs well in the rearview mirror, it was down to $680.3 billion.
... and for the first time in over a decade, business leaders around the world have declared that China is no longer the world's number one place to invest; America is.
In 2013, the U.S. topped the AT Kearney Foreign Direct Investment Confidence Index--the survey cited by the White House as the basis for this comment--for the first time since 2001. China was number two. But actions speak louder than words. According to data from the U.S. Bureau of Economic Analysis and China's State Administration of Foreign Exchange, foreign investment in the U.S. topped foreign investment in China in every year through 2010.
(Skipping ahead) After five years of grit and determined effort, the United States is better-positioned for the 21st century than any other nation on Earth.
Maybe! But who knows. You can't position for an entire century. There are too many unknowns. Changes and technological advances we can't fathom today will impact our economy and everyday lives between now and 2100, and you can't plan for what you don't know. Exhibit A: The shale boom. Merely seven years ago, many were convinced the world would run out of oil. Soon. Then energy developers started extracting oil and natural gas from shale rock formations, and Peak Oil Theory became a relic.
For several years now, this town has been consumed by a rancorous argument over the proper size of the federal government. It's an important debate--one that dates back to our very founding. But when that debate prevents us from carrying out even the most basic functions of our democracy--when our differences shut down government or threaten the full faith and credit of the United States--then we are not doing right by the American people.
Setting aside the issue of what is and isn't "right" for Americans, there are two big fallacies here. One: Government shutdowns have nothing to do with "the most basic functions of democracy." When the government shut down last October, the executive, legislative and judicial branches carried on as usual. Some "non-essential" (the government's own word) agencies went offline: national parks, museums, statistics agencies and other civil service groups. Similarly, the delayed debt ceiling compromise didn't threaten the U.S.'s "full faith and credit." Default wasn't in the cards. In fiscal 2013, total tax revenue was $2.77 trillion, far above the $221.2 billion in debt interest costs. In 1985, the Congressional Budget Office issued a memo permitting the Treasury to put those payments first. According to the Supreme Court's decision in 1935, the 14th Amendment essentially requires them to.
(Another skip) Today, after four years of economic growth, corporate profits and stock prices have rarely been higher ...
Well, four and a half years--the economy resumed growing in Q3 2009--but we'll chalk that up to a rounding error. Otherwise, this is spot on. After-tax profits hit another all-time high in Q3, and notwithstanding recent volatility, the S&P 500 is clocking new highs, too.
... and those at the top have never done better.
True--but 52% of Americans own stocks, according to an April 2013 Gallup Poll. Though this is down from the record 65% in 2007, that speaks more to investors' skittishness after the financial panic than a growing divide.
But average wages have barely budged.
Since the recession ended in June 2009, average hourly earnings of production and nonsupervisory employees have risen from $18.58 to $20.35. It doesn't sound like a lot, but it's in line with previous expansions since the Department of Labor's dataset begins in 1964. In the service sector, hourly earnings rose from $22.30 to $23.84. For manufacturing employees, hourly earnings rose from $18.18 to $19.50. Hourly retail earnings rose from $12.97 to $14.08. All are in line with historical norms. And as this analysis shows, the average American is better off today than in decades.
Inequality has deepened.
This sentiment usually comes from a well-publicized study, which found that from 2009 to 2012, the top 1% of incomes rose by 31.4%, while the bottom 99% rose by only 0.9%. However, this study doesn't accurately reflect true income levels. For one, it uses pre-tax income and doesn't include transfer payments--it doesn't account for the redistribution mechanisms already in place. It also counts capital gains as income--something the IRS hasn't done in decades. Finally, this study looks at household income, effectively pitting households with two more earners against households with single earners--the data are skewed by demographics. As George Mason economist Russ Roberts points out, the proportion of households with multiple earners is lower today than in 1980. As University of Michigan economist Mark J. Perry's shows at length, this and other household formation trends have a heavy bearing on the U.S.'s income breakdown.
Upward mobility has stalled.
According to a study released in late January, mobility hasn't changed in 50 years. No better, but no worse--the American Dream is alive and well, and opportunities abound. Just like always.
The cold, hard fact is that even in the midst of recovery, too many Americans are working more than ever just to get by; let alone get ahead. And too many still aren't working at all.
"Too many" is a qualitative statement--immeasurable. In essence, I agree. According to the Department of Labor, total U.S. non-farm payrolls are 1.12 million below the January 2008 peak. While that number is high, it isn't unusual for employment to take time to recover after a recession ends--jobs lag growth. But the growth we've seen since June 2009 has brought 7.56 million new jobs. As the expansion continues, so should job growth.
So what should investors take away from all this? Simply, our economy is in good shape--better than many politicians on both sides of the aisle would have us believe! And with popular perceptions still on the dreary side, stocks should have plenty of wall of worry to climb.
Elisabeth Dellinger writes about global financial markets and politics.