Like Barack Obama or not, if you take an impartial look at the economic legacy he leaves behind, you have to admit he never really got a fair shake.
For whatever reason, but most likely to score political propaganda points, of course, conservatives never gave Obama full credit for the remarkable economic recovery that played out after he took office.
In case you have any doubt, these two huge reversals should drive the point home.
• GDP was contracting at an annualized rate of 8.2% in the last quarter of 2008. In the third quarter of 2016, the economy grew 3.5%.
• In the month Obama was sworn in for the first time, the economy lost 791,000 jobs. As he leaves office, the economy added 156,000 jobs in December. It added 190,000 jobs a month, on average, since job growth resumed in February 2010.
“It’s safe to call the U.S. labor market more or less at full health. We’re starting 2017 off on a good foot.”
That’s a remarkable turnaround, which many conservatives never fully acknowledged.
During much of the 2012 presidential campaign, for example, Mitt Romney regularly referred inaccurately to an “Obama recession” — which was nowhere to be seen, in reality. Newt Gingrich took the dissembling a step further and said there was an “Obama depression.” Donald Trump rallied voters around the supposedly lousy state of the jobs market even though, as I will show in a moment, the jobs market is quite sound.
So now as Obama leaves office, it’s important to acknowledge the great gift he leaves Trump. Obama is gifting Trump a reasonably sound economy and one that has been substantially repaired, compared with the miserable state it was in when the last Republican administration left.
I hope I am wrong about the following. But I won’t be surprised if, after a few months, conservative commentators will be citing more or less the very same economic trends left by Obama as a “fantastic success,” credited to Trump. We’ve already seen glimpses of this at conservative websites such as the Drudge Report, which recently attributed signs of a robust economy to Trump, even before he has taken office.
So in an attempt to keep political commentators honest, I think it makes sense to lay down some markers and share some of the numbers that show Obama is leaving Trump a great gift — in the form of an economy that is in pretty good shape. Let’s hope Trump does even better. But considering the absolute mess that George W. Bush handed Obama, “pretty good shape” is not bad at all.
The investing angle
Before we get to the numbers, is there any investing angle in this? Yes, a big one. If you have a strong reaction — negative or positive, to Obama, Trump or this column — you should be careful because this mindset may be hurting your returns. It suggests your political views may be distorting your take on stocks and the economy too much.
I’ve been fully invested in stocks since the market lows in March 2009. But I watched a lot of conservative friends stay out of the market until 2011 or 2012 and miss much of the ride, because they dislike Obama so much they simply didn’t want to believe the economy was getting better under him. This is why I strive to be politically neutral and independent, and I suggest you try the same. This is admittedly not easy to do. But the upside is you will be open to a lot more views on the state of the economy and stocks.
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Now here are more details on Obama’s big gift to Trump on inauguration day.
Jobs, jobs, jobs
Economists define full employment as 5% unemployed. That’s because at any given moment, it’s natural for around 5% of people to be in between jobs or temporarily out of work. Now, with unemployment at 4.7%, we’re clearly there.
“This is an amazing achievement because the hole we dug ourselves into was so deep,” says Mark Zandi, chief economist of Moody’s Analytics. “Unemployment peaked in 0ctober 2009 at 10%, on the nose. We have come a long way. From the perspective of the job market, it is hard to argue that Obama is handing off anything but a good economy.”
That 4.7% isn’t the only statistic that shows us the decent strength of the labor market Obama leaves for Trump. Here are some other stats that you might not know about, if you don’t follow the economic data closely.
• Initial jobless claims finished 2016 at the lowest level ever, relative to the size of the labor force.
• Layoffs were at a record low in November, or 1.6 million. In January 2009 layoffs were at 2.6 million.
• There was a near-record number of job openings in November, at 5.5 million. (The record was 5.8 million, a bit earlier in the Obama administration.) In January 2009, that number was at 2.8 million.
• The number of people quitting jobs was over 3 million in November, levels you see only in the best of times. That number was below 2 million when Obama took office.
“We continue to hear from our business contacts that finding workers, especially in certain occupations, is getting progressively more difficult,” Philadelphia Federal Reserve Bank chief Patrick Harker said in a recent speech. “It’s safe to call the U.S. labor market more or less at full health. We’re starting 2017 off on a good foot.”
Conservatives like to push back on all this by noting that the labor participation rate is relatively low, at 62.7%.
Technically, this is true, of course. But like a lot of propaganda, it only tells part of the story. In reality, the low participation rate is largely just a natural product of a big demographic shift going on in our country. Our population is aging. Older people tend to retire, or drop out of the workforce for other reasons such as poor health.
So with the baby boomers aging (the oldest turned 65 in 2011), it’s only natural that the labor participation rate would slip. Keep in mind, there’s no age cutoff here. People are counted as potential workers until the day they die. The participation rate is defined as the number of people working divided by the number of people over 16, regardless of how old they are.
Two pieces of evidence support the conclusion that the low participation rate isn’t really a sign of a lousy jobs market, as Trump loved to claim during his campaign.
• Average hourly earnings recently jumped by 2.9%, the best increase since June 2009. Let’s face it, employers would not be bidding up wages unless they had to compete for workers because the job market is tight. “The proof positive that we are at full employment is that wage growth is accelerating rapidly,” says Zandi. “This is exactly what you would expect when the economy gets to full employment.”
• Another measure of unemployment called U6 has dropped to 9.2%, which is the level normally associated with full employment for this gauge. U6 includes people who aren’t currently looking for a job but say they want one, and people who are working part-time but would like to be full-time.