Obama Economy: Eight Years of Sputtering Growth

Analysts warn 3.5 percent third-quarter boost likely to continue disturbing 'start-stop' pattern

Thursday’s revised figures from the Commerce Department showed that the U.S. economy surged by nearly 3.5 percent from July through September, offering some good news after months of anemic growth.

Unanswered are two questions that will go a long way in determining whether Donald Trump has a successful presidency: Will that pace be more than a temporary blip, and will it be able draw in millions of people who have dropped out of the labor force even as the official unemployment rate has plummeted?

“Wall Street is ecstatic about the election of Donald Trump. There’s no other way to put it.”

James Bennett, an economics professor at George Mason University in Virginia, pointed to a rising stock market since last month’s election as evidence the country is poised for strong economic gains.

“Wall Street is ecstatic about the election of Donald Trump,” he said. “There’s no other way to put it.”

Bennett said Trump’s Cabinet choices offer assurances to the private sector. Although the president-elect has been criticized for stocking his administration with wealthy business leaders, Bennett said those are the kinds of people who have been most successful.

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“It’s important he’s appointing billionaires,” he said. “It sends an extremely strong signal that we’re open for business.”

But Alan Tonelson, a economic policy analyst who writes the RealityChek blog, said there are reasons to be cautious about the third-quarter gross domestic product figures. He noted that from October 2013 through September 2014, economic growth exceeded 4 percent in three out of four quarters. Rather than the takeoff point that many hoped for and predicted, however, the economy slipped back into the doldrums and never cracked 3 percent in the following seven quarters.

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“We’ve seen growth in this recovery that’s been even faster,” he said. “We haven’t been able to sustain it. In fact, there’s a start-stop pattern that’s been a very disturbing characteristic of this economy.”

Coming off two extremely poor quarters, the economy should have been poised to bounce back more strongly than 3.5 percent, Tonelson said.

“Relatively speaking, that’s a weak rebound,” he said.

The number of employed people ages to 16 to 65 only last year exceeded the previous peak in 2007 before the economic collapse. With the working-age population now more than 10.6 million higher than in 2007, the percentage of U.S. residents with jobs is much lower today.

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According to Census Bureau data analyzed by the Washington-based Center for Immigration Studies, a disproportionate share of the employment increases have gone to foreign-born workers. The number of working-age, American-born residents with jobs sits only about 143,000 above what it was in the third quarter of 2007; meanwhile, 2.3 million more working-age immigrants are employed today than back then.

“What we’ve seen is a very large fraction of jobs are going to immigrants, even after the recession,” said Steven Camarota, director of research at the think tank.

Not surprisingly, education is a strong predictor of employment. According to the Census Bureau data, 85 percent of American-born workers with college degrees were employed or looking for work in the third quarter, about the same as in 2007. Less-educated natives have dropped out of the labor force in bigger numbers. Among natives without high school diplomas, only 44 percent were working in the third quarter. That is down from 54 percent in 2000 and 48 percent in 2007.

It remains unclear whether immigration is pushing Americans out of the labor force or if those residents are not working for other reasons.

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*Third quarter statsitics

“The short answer is we don’t know. But there’s a possibility that immigrants slowed the return of natives to the workforce,” Camarota said.

He said with the presence of so many idle Americans, however, there appears to be an available pool of potential workers without migrants. “It’s hard to find evidence of a labor shortage, which is one of the arguments for immigration,” he said.

Camarota said the economy needs to kick into a higher gear to draw more people into the job market. “The U.S. economy still is not growing fast enough to absorb the increase in workers, natives and immigrants,” he said. “We have absorbed the unemployed [who were seeking jobs]. We have not absorbed all people who left the labor force.”

But Jason Richwine, a policy analyst who has studied the nexis between immigration and the economy, said the declining labor force participation rate predates the Great Recession.

“The labor force participation rate is not very well correlated at all with economic progress,” he said, later adding, “There are general structural economic problems that the general economy doesn’t affect much.”

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Tonelson, the RealtyChek analyst, said that “decades’ worth of lousy trade deals” remain in effect and likely will continue to act as a drag on the economy. He said the economy has performed better at job creation than growth but added that new jobs disproportionately have come in non-productive sectors. He pointed to data indicating that productivity gains have slowed over the past decade.

Those are among the reasons why prior bursts did not translate into sustained, strong growth, he said.

“And without major policy changes, not only with trade but also immigration, I don’t see it happening,” he said.

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