OPINION — No release has been more highly anticipated this summer — with the possible exception of “Mission: Impossible — Fallout” — than the Bureau of Labor Statistics’ second quarter GDP numbers.
Washington and Wall Street, with a lot on the line, have been anxiously awaiting the federal government’s quarterly report card on economic growth, billed as the first really big test of President Donald Trump’s economic policies.
And much to the chagrin of the media and Democrats everywhere, the administration passed with flying colors. The 4.1 percent GDP growth rate in the second quarter was not just respectable, it was evidence of a steady, revitalized economy.
Yet, last week, opinion writers and cable news anchors worked overtime telling audiences the favorable GDP numbers were nothing but “smoke and mirrors.” Don’t be fooled, they warned, into thinking Trump’s economic policies might actually work long-term. In other words, “nothing to see here. Move along.”
Democrats weren’t thrilled with the good economic news either. The 4.1 percent growth figure clashed with the anti-tax cut narrative they’ve been promoting since last year when all House and Senate Democrats opposed the Republican tax reform legislation.
Senate Minority Leader Chuck Schumertweeted a response to the GDP news that made one wonder if he is living in the same universe, saying, “The GOP promised their tax bill would be ‘rocket fuel’ for the economy. Instead, it blew up the deficit by a trillion dollars & sparked a surge in stock buybacks, benefiting the biggest corps, their execs & wealthy shareholders while leaving middle-class families largely behind.”
On “Fox News Sunday,” Democratic pundit Mo Elleithee typified the party response by selectively citing the few good GDP numbers on Obama’s watch in order to discredit Trump’s increasingly strong economy.
While Elleithee acknowledged that a 4.1 percent economic growth is “a good number, a strong number,” he went on to say that “it also would have been the fifth-strongest number of the Obama administration, right?” And amazingly, he claimed this year’s second quarter growth “is the continuation of economic recovery that began in 2009 and 2010.”
Flaws in the argument
Cherry-picking Obama’s economic record may make for good sound bites, but anyone willing to actually look at the numbers will find that Obama’s “bungee” economy did not deliver the stable growth or the kind of consistency business needs to have the confidence to invest.
For the past week, Democrats and many in the media have been arguing that Trump’s 4.1 percent growth isn’t as strong as the GDP estimates during the Obama presidency, pointing to the former president’s best numbers of 5.1 percent in Q2 2014; 4.9 percent in Q3 2014; 4.7 percent in Q4 2011; and 4.5 percent in Q4 2009.
No question, those are very good numbers. They just weren’t sustainable quarter to quarter. Start with the fact that the strong two quarters in the middle of 2014, for example, followed a terrible first quarter, when GDP actually contracted by a full percentage point.
Ditto with the 2011 and 2009 quarters — all of these strong showings were preceded by negative growth quarters earlier in the year. At best, Obama’s economy can be characterized as erratic with ups and downs, highs and some real lows throughout his tenure. On the other hand, when looking at the quarterly numbers of Trump’s first year and half, you see that he can now claim five consecutive quarters of 2 percent growth or greater (beginning in Q2 2017).
Over his presidency, Obama was only able to string together three quarters of that kind of growth. And the only reason Trump doesn’t have six out of six is because he shared the first quarter 2017 results with the previous administration.
Looking at the entirety of the Obama presidency, GDP growth was below two percent in 17 out of 32 quarters. Even after the financial crisis had lessened, half of the 16 quarters of his second term were also under 2 percent.
What progress he did make was more the result of Republicans in Congress pushing to make the Bush tax cuts permanent. (They were extended in 2010 and most were made permanent in 2013.) That gave business some certainty, and allowed for planning. Unfortunately, at the same time, the president went into regulatory overdrive which blunted what might have been a more robust recovery and the jobs that would have come with it.
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Clues for November
So, what does last week’s positive growth report, coupled with good unemployment numbers, mean for the fall elections? We know that going into the 2014 midterms, Obama’s two quarters of good growth were not enough to move the issue of handling the economy in the Democrats’ favor. In October 2014, Republicans still led Democrats by 4 points on the economy and were even on jobs, according to a New Models survey.
The exit polls that year offered the reason behind the Democrats’ poor showing: 70 percent of voters said the economy was not so good or poor.
A comparison of the political environments in 2006 and 2018 is a better way of looking at the parties’ prospects this year. In June 2006, Democrats led on the issue of handling the economy by 3 points and jobs by 5 points. That’s where the difference lies this year.
In a June 2018 Winning the Issues survey, Republicans led on the economy by 8 points and on jobs by 6 points — a significant difference from 2006. This is one of the biggest factors in the GOP’s favor and could mitigate what would otherwise be a usual midterm disadvantage for the party in power.
This second quarter also reflects the first full quarter when workers have seen bigger paychecks because of changed withholding rates driven by the Republican tax cuts. We’ve also seen consumer spending rise at a 4 percent annual rate this quarter, the strongest in four years. It may be too early to claim cause and effect, but the spending numbers definitely undercut the Democrats’ argument that the tax cuts only benefitted the rich.
The question remains whether the electorate will evaluate these kinds of numbers as merely a natural high and low of an economic cycle — in other words, as another bungee economy — or whether Trump’s five quarters of steady upward growth represents structural, sustainable improvement.
The answer and how it could impact voters may well determine the election this fall.
David Winston is the president of The Winston Group and a longtime adviser to congressional Republicans. He previously served as the director of planning for Speaker Newt Gingrich. He advises Fortune 100 companies, foundations, and nonprofit organizations on strategic planning and public policy issues, and is an election analyst for CBS News.