Re: U.S. Economy Shrinks By Most Since Great Recession in 1Q
Aw, no question about it, strong economic growth has been stifled by poor weather for the last 6 1/2 years. It is incredible how it is never economic policies by Obama that had no affect on the economic results but rather the weather. We all know that the Keystone pipeline, attacks on the coal industry, Obamacare, class warfare, higher taxes, 20 million unemployed, under employed, discouraged workers are all Bush's fault or the weather.
Several quick things:
1. Weather was one factor. It was not the only factor. Weather was cited in a variety of economic reports during the timeframe in question.
2. Some macroeconomic factors were also involved i.e., continuing economic challenges in parts of the Eurozone, a growth slowdown in China, etc.
3. Keystone would make a very tiny contribution to GDP were it approved, but because it does not exist that contribution has not been made. Hence, one can't argue that Keystone's lack of approval led to the decline in GDP that took place. The strongest argument for Keystone is not on economic grounds (very small impact) but on grounds of strengthening the bilateral U.S.-Canada relationship.
4. The coal industry accounts for less than 0.5% of GDP. It has a somewhat larger impact than that percentage through the energy price channel. Energy prices overall during Q1 were nearly flat. The big exception was natural gas, which rose about 15%.
5. Since the tax changes went into effect, there has been a modest drag on economic growth. At the same time, revenues have increased faster than the economy has grown and government spending has increased, reducing the nation's annual budget deficits. Reduced state and local government expenditures also provided a drag.
6. The long-term unemployed and discouraged workers reflect the larger post-recession transition that remains underway where certain industries play a lesser role in terms of the overall economy than they did before. Structural unemployment is a complex matter and one can't easily attribute it to President Bush or President Obama, as even with faster growth, the skills-jobs mismatch would not necessarily be remedied. The mania that preceded the Great Recession and fueled the housing bubble was the result of numerous factors, some of which predated the Bush Administration and some of which had international origins (e.g., capital flowing from Asia to the U.S. following the Asian Financial Crisis). The narratives that aim to hold Presidents wholly responsible for economic developments--booms and busts--are overly simplistic.
7. Economic data for Q2 generally point to a growth rebound (perhaps with real GDP growth in the 3%-4% range on an annualized basis).
8. Some risks lie ahead. Should the modest increase in oil prices give way to a sharper rise which has staying power, should Europe's economy fare worse than anticipated, should the Fed's gradual tapering lead to a larger than anticipated rise in interest rates (not very likely at this time) on account of falling bond prices, should fiscal policy tighten much more quickly than anticipated, etc., all those factors could dampen growth over the remainder of the year.