Obama's Economic Record: Disappointing, But Not a Disaster
In the final days of his tenure, President Obama is busy polishing his legacy, including his farewell address on Tuesday. Like all presidents before him, judgment of his record will hang in large part on perceptions about how the economy performed during his time in office. An objective assessment of the outgoing president’s record would fairly conclude that the economy under his watch was not as bad as his critics charge but not as good as his supporters claim.
In the administration’s final Economic Report of the President, issued in mid-December, the Council of Economic Advisors pronounced that, “Over the two terms of the Obama Administration, the U.S. economy has made a remarkable recovery from the Great Recession,” adding that “its policies have promoted economic growth that is robust and widely shared.” Judging by polls and the November election, that view is not widely shared among Americans.
President Obama’s economic record can be judged on six major indicators, five of them covered in the statistical tables contained in the latest report. Those indicators are the growth of output, as measured by real gross domestic product; employment; real wages; inflation and interest rates; international trade; and net household wealth. The president’s record will be compared with the economy’s performance under the preceding four presidents, covering a span of 28 years beginning in 1981.
For comparison, the first year of a president’s time in office will be credited to the preceding president, under the assumption that a president’s policies take time to be implemented and take effect. The first year of a new president’s term largely reflects either the afterglow or the hangover from the economy under the previous administration. This is especially true for employment, which tends to be a lagging indicator.
Based on those factors, let’s consider the Obama economic record:
GDP growth: Under President Obama, annual economic growth from 2010 through the first three quarters of 2016 averaged 2.1 percent. This is sluggish by historical standards. From 1982 through 2009, real GDP growth averaged 2.8 percent per year, even when including the steep recessions of 1982 and 2008-09 and two milder downturns in between. The president’s economic team can talk all day about growth that is “robust and widely shared,” but 2 percent growth is subpar.
This below-average record comes despite a cumulative $7 trillion in deficit spending during the Obama years. And it compares unfavorably to almost all other post-war recoveries, which typically exhibit above average growth. More than any other indicator, 2.1 percent GDP growth is the ultimate source of the dissatisfaction most Americans express about the economy today.
Employment: Despite slower than average growth, the Obama record on net job creation has been better than average. From 2010 through 2016, civilian employment grew by an average of 1.64 million jobs per year. That compares to an average annual growth of 1.41 million jobs during the 28 years and four presidents that proceeded Obama. The unemployment rate under Obama dropped from 9.3 percent in 2009 to 4.9 percent in 2016. That was by far the biggest drop in the jobless rate compared to his predecessors, and meets the standard definition of “full employment.”
President-elect Trump has dismissed the unemployment rate as “totally fiction.” That’s not true, but it’s fair to say that the headline unemployment rate is not the full story. Under President Obama, the growth in the labor force also slowed dramatically to less than half the rate of the previous four presidencies. The labor-force participation rate has dropped to its lowest level in decades, 62.8 percent compared to a peak of 67.1 percent in the late 1990s. Part of the drop is due to demographics, with millions of aging Baby Boomers in the process of retiring from the workforce. But it also reflects a large number of “discouraged workers” who have given up on looking work and have thus dropped out of the labor force. Like the mediocre growth of GDP, the lack of labor force participation reflects the underside of the Obama economy that has fed into voter frustration.
Real wages: Here the story is mixed. Average weekly earnings of production and non-supervisory workers, adjusted for inflation, have grown an average of 0.8 percent a year in the Obama economy. That compares to a scant 0.1 percent per year under the previous four presidents. But by an alternative measure, “real compensation per hour,” which includes benefits, the annual growth during the Obama years was 0.6 percent, which was below the 1.1 percent annual average of the preceding presidencies. The annual growth in labor productivity, or output per hour worked, was 0.9 percent during the Obama years, less than half the rate of the previous period. Because labor productivity ultimately determines real compensation, this is one of the more troubling aspects of the Obama economic record and may further explain voter angst.
Inflation and interest rates: Here the Obama record is enviable. The annual average inflation rate of 1.6 percent during his tenure is the lowest of any recent presidential term. The taming of inflation and inflationary expectations has translated into historically low interest rates. During Obama’s time in office, the rates on new mortgages have averaged 4.21 percent compared to more than 7 percent as recently as 2001. Rates on 10-year Treasury notes have averaged 2.47 percent compared to 6.85 percent under his recent predecessors. Of course, it’s the Federal Reserve Board that determines monetary policy, but it’s the president who appoints its members and who can support or oppose its policies.
International trade: Like his successor, Donald Trump, President Obama first ran for the office as a critic of trade-expanding agreements. But once in office he pivoted to a more trade-friendly approach, accepting the North American Free Trade Agreement, signing into law three new bilateral FTAs—with South Korea, Colombia, and Panama—and negotiating the Trans-Pacific Partnership. In terms of actual trade flows, the volume of imports and exports have both grown about 4.5 percent per year during the Obama presidency. The growth in trade marks a healthy recovery from the global recession of 2008-09, but the pace has been slower for both exports and imports than the during the preceding four presidencies. (Note to Trump: Real imports grew the fastest during those presidencies—Reagan and Clinton—that also experienced the fastest economic growth. Imports are not a drag on growth, but rather its handmaiden.)
Net household wealth: While the Obama record on wages is mixed, on net wealth the record is impressive. Fueled by recoveries in both the housing and stock markets, the net wealth of American households and non-profits rebounded from $57.8 trillion at the end of 2009 to $90.2 trillion at the end of the third quarter of 2016, according to the Federal Reserve Board’s Flow of Funds report. Under Obama, the net private wealth of Americans grew 6.8 percent per year compared to 6.1 percent under his recent predecessors. The S&P 500 index has climbed by an annualized rate of more than 11 percent since the beginning of 2010, compared to an annualized 8.1 percent from the beginning of 1982 through 2009.
The 2017 Economic Report of the President deservedly trumpets the Obama record on net household wealth. The irony is that the robust growth of net wealth is not as widely shared as gains in real wages or real compensation. While most people would consider rising equity and housing values to be good, those indicators also tend to widen inequality because richer households are much more likely to own stock and homes than poorer Americans.
There are other ways of measuring economic performance, but these major indicators capture much of the economic reality that Americans live with every day. It should be clear from the evidence that the Obama economic record is not “remarkable” compared to his predecessors. The economy’s performance under Obama was better than under either Bush 41 or Bush 43, but it is notably inferior to the performance under either Reagan or Clinton.
President Obama did inherit an economy in crisis in early 2009, but even from that depressed base year, the seven-year recovery and expansion under his watch has been disappointing by historical standards. Even with unprecedented fiscal and monetary stimulus, the economy has failed to rise above its plodding rate of 2 percent annual growth. During his two terms, President Obama provided few concrete proposals for structural, supply-side reforms that would boost the economy’s underlying productivity and growth potential.
Whatever spin his friends or foes may try to put on it, President Obama’s economic record deserves no more and no less than a tepid “C.” The American electorate appears to agree.