Employment Growth During the Presidencies of Obama and Bush

Cumul Private Job Growth from Inauguration to May 2014

Cumul Govt Job Growth from Inauguration to May 2014

The Bureau of Labor Statistics released its regular monthly jobs report on June 6.  Nonfarm payroll employment rose by 217,000 – a broadly similar pace as in recent months.   But most news reports focussed on noting that total jobs in the US (actually, total nonfarm payroll jobs) have now for the first time exceeded the peak previously reached in January 2008, before the sharp fall that began in the last year of the Bush presidency.  It took the economy six years and four months to get back to the level of employment it had then.

While this is a significant benchmark, it is not all that meaningful by itself.  The labor force has continued to grow over the last six years, so unemployment remains high (at a rate of 6.3% currently).  Conservative critics have charged that the pace of job creation under Obama has been slow, and assert that the slow pace is due to Obama’s anti-business administration (they allege), with high taxes and increased regulation, the negative effects (they assert) of the measures under the Affordable Care Act to make it possible for the uninsured to obtain health insurance coverage, plus an allegation of “increased uncertainty”, as all acting to hold back the private sector from creating new jobs.

To judge such allegations, one might examine the pace of job creation during Obama’s term to the pace during the term of George W. Bush, a conservative Republican who was purportedly pro-business and anti-regulation, and who presided over record tax cuts.  One needs also to separate net job growth in the private sector from net job growth in the public sector to understand the story.

The two charts above do this, and update similar charts in previous posts on the blog that have examined the issue (the most recent from January 2013).  Points to note include:

1)  Net private job growth has been far higher under Obama than under Bush.  As the top chart shows, there were 5.2 million additional private sector jobs in May 2014 compared to when Obama was inaugurated, and an additional 9.4 million private jobs from the trough reached in February 2010, a little over a year after Obama took office.  Private jobs were disappearing at a rate of over 800,000 every month when Obama was taking the oath of office.  This was soon turned around as a result of stimulus measures and the aggressive actions of the Fed, with the rate of decline at first diminishing and then positive job growth appearing a year later.

Under Bush, in contrast, there were only 2.4 million more private jobs at the same point in his presidency relative to when he took office.  A primary reason for this difference is that while the economy was collapsing when Obama took office (which he then turned around within a year), the downturn at the start of the Bush term in 2001 began after he took office.  The economy then began to turn around (in terms of job growth) only two and a half years into Bush’s term in office.  Only then did private jobs begin to grow under Bush.

2)  Once the private job growth began (13 months into Obama’s term, and 30 months into Bush’s term), the pace of that job growth has been remarkably steady in both administrations.  There were month to month variations, of course, particularly in the data as originally announced (but then later revised, in the regular process to incorporate more complete data as it becomes available).  That is, the lines in the chart above for private job growth are both remarkably straight once the turning points were reached.

3)  Not only was the pace of private job growth remarkably steady after the turning points, they are also remarkably similar in terms of that pace for Obama and Bush.  That is, the two lines in the graph above are roughly parallel to each other after the respective troughs.  The pace of private job growth has been 184.5 thousand per month under Obama up to now, and a bit less, at 168.2 thousand per month, under Bush from his trough up to the same point in his presidency.

Thus there is no support in this data for the assertion that private sector job growth has been especially slow under Obama, due to an alleged anti-business administration.  Private sector job growth under Obama has been similar to, and in fact a somewhat higher than, the pace under Bush during the respective recoveries.  And total private job growth is far higher under Obama than it was at the same point in the Bush presidency, as the recovery was earlier under Obama.

4)  Where Obama and Bush do differ, and markedly so, has been in net government job growth.  Government jobs grew strongly under Bush (as they have for all recent presidents other than Obama; see this blog post).  But net government jobs have fallen sharply and consistently under Obama.  Only in the last year or so have they leveled off, but with no recovery in number.  Keep in mind that government jobs include jobs at all levels of government, including state and local government.  It is not just the federal administration that is covered here.  But the impact on the economy is similar whether it is a locally employed school teacher being laid off, or a researcher employed by the National Institutes of Health.

Bush is viewed as the small government conservative.  But government jobs grew by 1.1 million from the month of his inauguration to May 2006.  Government jobs fell by 710,000 over the similar period in Obama’s term.

5)  Thus part of the reason net overall job growth has been disappointing during Obama’s term is not that private job growth has been slow, but rather that government has cut back on those it employs, hence bringing down the overall total.  If government jobs had simply remained flat during Obama’s term in office, rather than fall by 710,000, the direct impact on the unemployment rate would have been to bring that rate down to 5.8% from the current 6.3%.  But that would be the direct impact only.  There would also be indirect impacts.  The now employed school teacher or researcher would spend their newly earned income on what they need, which would lead to increased demand for products and employment of additional workers to make them.  (See this Econ 101 blog post on the multiplier and what it means.)  Assuming a not unreasonable employment multiplier of 2 under current conditions, the impact of simply keeping government employment steady rather than allowing it to fall by 710,000 would have been to bring the unemployment rate down to 5.4%.

Had government employment been allowed to grow under Obama as it had under Bush, the impacts would have been significantly larger.  The direct impact alone (before the multiplier) would have brought the unemployment rate down to 5.1%.  Mechanically applying a multiplier still of 2 would imply an unemployment rate brought down to 4.0%.  But this would have then been at the low end of the range normally taken to represent full employment (of perhaps 4% to 5 1/2%, depending on the assessments of different analysts), and it would no longer be correct to assume a multiplier would have remained at 2.  Rather, and as discussed in the blog post cited above on multipliers, there would have been other reactions, including most likely by the Federal Reserve Board.  With the unemployment rate having been brought down to the full employment range, one would expect that the Fed would have shifted back to a more normal interest rate and monetary policy from its current policy (due to the still high unemployment) of targeting interest rates to as close to zero as possible.

Summary and Conclusion

To conclude,  far more private jobs have been created during the Obama presidential term  than during the same period in the term of George W. Bush.  In part this was due to the more rapid recovery under Obama (due to the stimulus and other measures taken) from the economic collapse he inherited from the last year of the Bush administration, than the recovery under Bush from the downturn that began a few months after he became president in 2001.  But it is interesting to see that once the respective recoveries began, the pace of private job growth was similar during the Obama recovery as under the Bush recovery (and indeed somewhat faster under Obama).  And this is despite the contractionary policies followed by government since 2010.  For the first time since at least the 1970s (I did not look back further in that blog post), government spending has been cut in an economic downturn, rather than allowed to rise to make up for insufficient aggregate demand.

Where the Obama and Bush periods differ, and substantially, is in government employment.  Government employment grew under Bush (as is normal, and as has been the case under every prior president since at least Eisenhower), but has been cut sharply under Obama.  It is because of these cuts that total employment growth under Obama has been disappointing.  Without those cuts, the economy would have returned to full employment some time ago.

Have Been Away

It has been some time since my most recent blog post.  My apologies.  It was difficult to keep up due to a combination of travel and a number of personal things to take care of.  There will be a new post following this one, but possibly then another hiatus due to another upcoming trip.  I hope to return to normal blogging by mid-summer.

Frank

Red States vs. Blue States: Lower Incomes and Less Growth in Texas

State-Level Real GDP per Capita as Ratio to US, 1997-2012

A.  Introduction

Texas Governor Rick Perry’s speech on March 7 to the annual CPAC (Conservative Political Action Conference) meetings was described by various news web sites as “a barn burner address” that wowed the conservatives, as “a rousing speech that was one of the best-received of the conference so far”, as a “fiery speech that ignites CPAC”, as a speech that brought “the audience to its feet and eliciting loud cheers”, and that “received huge applause throughout his rousing speech”.

Rick Perry has been Governor of Texas for more years than any other governor in Texas history.  He was elected Lieutenant Governor in 1998, and became governor in December 2000 when George W. Bush resigned to become President of the US.  Perry was then elected governor in his own right three times (in 2002, 2006, and 2010), the first Texas governor to be elected to three four-year terms.  He is not now running for a further term, and thus will step down following the election later this year.  It is widely assumed he will once again seek the Republican nomination for the Presidency in 2016, and many interpret his CPAC address as confirming this.  He is well known for the failure of his 2012 campaign seeking the Republican nomination, when he quickly went from front-runner to quitting following a series of goofs.  The best known was in one of the debates with the other Republican contenders, when he said he would close three cabinet level departments in the federal government but could only remember two, in his famous “oops” moment.

Perry’s speech at CPAC set forth what will likely be a major theme of his upcoming presidential campaign:  the contrast between the great performance (in his view) of red states (conservative states that generally vote Republican) and the terrible performance of blue states (liberal states that generally vote Democratic).  As the longest-serving governor of the premier red state of Texas, it is not surprising that Perry would say this.  But what has the performance actually been?

B.  Real GDP per Capita

The graph at the top of this post presents one key measure:  real GDP per capita, presented as a ratio to the US average.  Texas is shown (in red), along with two of the top blue states:  Massachusetts (in blue) and New York (in green).  The figures are calculated from data issued as part of the GDP accounts by the Bureau of Economic Analysis (BEA), which provides such data at the state level GDP on an annual basis (with 2012 the most recent available).  The current series goes back only to 1997, before which the state-level figures were calculated on a different basis, and thus are not directly comparable to the later figures.  But 1997 is also the year before Perry was elected Lieutenant Governor, so it provides a suitable starting point.

As the graph shows, real per capita GDP was substantially higher in Massachusetts and New York than in Texas in all of these years.  Indeed, per capita GDP in Texas actually fell relative to that for the US as a whole from 1998 to 2005 (meaning growth in Texas was slower than in all of the US over this period), after which it started to recover.  The oil boom resulting from the sharp escalation in oil prices from the middle of the last decade was certainly a factor helping Texas in recent years.

And it is not only in terms of real income levels where Texas has lagged.  Texas has also lagged Massachusetts and New York in terms of overall growth since 1997.  Real per capita GDP rose by 30.4% in Massachusetts over 1997 to 2012 and by 28.9% in New York, but only by 21.7% in Texas:

State-Level Growth of GDP per Capita, 1997 - 2012

C.  Personal Income per Capita

GDP per capita is the broadest measure of income generating activities in a state, but not all of GDP goes to households.  Part will go to corporations (and not distributed to households via dividends).  It therefore is also of interest to look at per capita personal income by state, again relative to that for the US  as a whole:

State-Level Personal Income as Ratio to US, 1997-2012

Once again one finds this measure of income to be far higher in the blue states Massachusetts and New York than in the red state of Texas.  But what is different and interesting is that personal income per capita in Texas is seen to be also below personal income per capita for the US as a whole.  A higher share of GDP generated in Texas goes to corporations than is the case for the US as a whole.  GDP per capita in Texas is somewhat above the US average (although not as much above as in Massachusetts or New York), but personal income per capita, once one subtracts the share going to corporations, is lower in Texas than for the US as a whole.

D.  Conclusion, and Re-Nationalizing the Postal Service

Conservatives, including not surprisingly Governor Perry, hold up Texas as the ideal which they want the nation to emulate.  But GDP per capita is lower in Texas than in the blue states of Massachusetts and New York, and has grown by less in Texas than in Massachusetts or New York over at least the last fifteen years.  In addition, personal income per capita is not only lower in Texas than in Massachusetts or New York (and very much lower), it is even lower than the US average.  Corporations account for a disproportionate share of incomes earned in Texas.

Perry closed his speech to CPAC, to cheers and loud rounds of applause, by declaring that the federal government should “Get out of the health care business, get out of the education business”.  Presumably this means Perry wishes to end Medicare, and that federal government assistance to students and schools up to and including universities should also end.  It is not clear, however, he has thought this far ahead on the implications of what he is calling for.  Calling for the end of Medicare, as conservatives have in the past, is not currently a popular position.

But while Perry said the federal government should “get out” of health and education, one area where he appeared to call for expanded federal responsibility was in the running of the postal system.  The proper federal focus, as established in his reading of the constitution, should be on defense, foreign policy, and to “deliver the mail, preferably on time and on Saturdays”.

The constitution does indeed call on the federal government to ensure postal services are made available.  But while this was done through a cabinet level department under the US President for many years, since 1971 the postal service has been run as a government-owned but independent establishment, run like a private corporation with its own board.  It is not fully clear what Perry means by arguing the federal government should return to its original mission vis-a-vis postal services, but the implication appears to a be reversal of its 1971 conversion from a cabinet level department to an independent agency run along private lines.  That would be an odd position for a conservative.  But I suspect he has not really thought this through.

The Obama Bull Market Rally on Its Fifth Anniversary

S&P 500 Index, March 9, 2009, to March 10, 2014

Bull Markets, 1940-2014, updated to March 10, 2014

 
   Bull Market Rallies Since 1940
  Ranked by overall growth in real terms
Start Date End   Date Calendar Days Nominal % Change Real % Change Real Rate of Growth
Dec 4, 1987 Mar 24, 2000 4,494 582% 361% 13%
Jun 13, 1949 Aug 2, 1956 2,607 267% 222% 18%
Aug 12, 1982 Aug 25, 1987 1,839 229% 181% 23%
Mar 9, 2009 Mar 10, 2014 1,827 177% 151% 20%
Apr 28, 1942 May 29, 1946 1,492 158% 124% 22%
Oct 22, 1957 Dec 12, 1961 1,512 86% 76% 15%
Oct 9, 2002 Oct 9, 2007 1,826 101% 75% 12%
Jun 26, 1962 Feb 9, 1966 1,324 80% 69% 16%
May 26, 1970 Jan 11, 1973 961 74% 57% 19%
Oct 6, 1966 Nov 29, 1968 785 48% 37% 16%
Oct 3, 1974 Nov 28, 1980 2,248 126% 34% 5%

Today marks the fifth anniversary of the Obama bull market rally.  The rally began on March 9, 2009, just six weeks after Obama was inaugurated.  A reader of this blog suggested that on this anniversary, an update of previous posts on the strong performance of the stock market during Obama’s tenure (see here and here) might therefore be timely and of interest.

Stock market prices have indeed continued to rise, and as the table above shows, stocks during Obama’s term in office have now posted the fourth highest gains of any stock market rally since 1940.  Market rallies are defined as at least a 25% rise in the S&P 500 Index (in real terms), without a 20% fall.  Equity prices (as measured by the S&P 500) have risen by 177% in nominal terms since March 9, 2009, as of the close today.  The increase in real terms (using the CPI inflation index) has been 151%.  And since this rally is on-going, it could move further up in rank.  In addition, in just twelve more days (assuming the rally does not suddenly collapse) this rally will be the third longest in terms of calendar days of all market rallies since 1940.

It is also interesting to see how steady the upward progression has been, especially since September 2011.  This is shown in the graph at the top of this post.  I do not believe anyone had predicted this.

The rally could also end tomorrow.  All rallies eventually come to an end, and this one will as well.  But the rise in prices already achieved, the fourth largest since 1940, needs to be recognized.

Should Obama be given credit for this historic market rally?  Not fully.  I doubt that equity prices in themselves are a primary objective of what Obama has been trying to achieve.   Rather, the objective has been a stronger economy.  Regulatory as well as policy measures have been taken with the aim of strengthening the system, and this ultimately benefits business (as well as the population) as a whole.  This then helps equity prices.  Unfortunately, and as this blog has discussed in earlier posts, fiscal drag from cuts in government spending has held back the pace of the recovery, and this fiscal drag is continuing.  The economy could be doing better.  Nevertheless, there has been a partial recovery.  But it is not yet complete, nor as rapid as one would have had without the fiscal drag.

But what this strong growth in the stock market does clearly indicate is that the charges by Republican politicians that Obama has been bad for business (indeed a disaster for business many of them have said), has no basis.  If there were any truth to the charge, stock market prices would not be up by 177% in nominal terms (and by 151% in real terms) over the last five years, leading to the fourth biggest rally in stock prices in three-quarters of a century.

The Continued Fall in Government Spending Under Obama

Govt Spending on Goods & Services by Presidential Term, Quarterly

A.  Introduction

Government spending continues to fall under Obama.  As this blog has noted in earlier posts, the fiscal drag from this reduction in demand for the goods and services that unemployed workers could have been producing can fully explain why the recovery from the 2008 has been so slow.  As another blog post noted, if government spending had merely been allowed to grow under Obama at the same pace as it had historically, the economy would by now be back at full employment.  The public debt to GDP ratio would also be lower, as GDP would be higher.  And if government spending had been allowed to grow as it had under Reagan, we would likely have returned to full employment by 2011.

Fiscal drag is therefore important.  Yet it is still not yet commonly recognized that government spending has been falling in real absolute terms for the last several years (and even more so when measured as a share of GDP).  Earlier blog posts have reviewed this.  The trends have unfortunately continued and indeed strengthened over the last year.  Whether this will now change with government spending finally leveling off, and perhaps even start to recover, remains to be seen.  The budget compromise for fiscal years 2014 and 2015 reached by Senator Patty Murray and Congressman Paul Ryan in December, and passed by Congress in January, will reverse part of the impact of the budget sequester.  According to calculations by the Committee for a Responsible Federal Budget (fiscal hawks in favor of budget cuts), the agreement for FY2014 will lead to a small (1.8%) rise in nominal terms in budget authority compared to the FY2013 post-sequester levels.  This would still be flat to negative in real terms, based on inflation of about 2%.  And the FY2014 sum would still represent a 3.7% fall compared to what the FY2013 pre-sequester levels would have been.

Possibly more important would be government spending at the state and local level.  This was cut back as a result of the 2008 collapse and slow recovery, due to lower revenues and the requirement in many states and localities of a balanced budget.  While expenditures were still falling in 2013, revenues have started to grow (due to the positive, though still slow, recovery of GDP) and state and local budgets as a result can now start to recover as well.  But it also remains to be seen if that will happen.

This blog post will update the government spending figures during the Obama term through the fifth year of his administration.  And it will present the figures from a different perspective than before, by tracing the paths during the course of each presidential term (going back to Carter’s) relative to what the spending was at the start of their respective presidencies.

[Note that all the government spending figures used in this post will be in real, inflation-adjusted, terms.]

B.  Government Spending on Consumption and Investment

The graph at the top of this post shows the tracks of real government spending on consumption and investment during each presidential term going back to Carter, as a ratio to what it was at the start of their terms.  The base period is always taken as the last quarter before their inauguration (i.e. in the fourth quarter of the calendar year preceding their January 20 inauguration).  The data is computed from the figures in the standard National Income and Product Accounts (NIPA accounts, also commonly referred to as the GDP accounts) of the Bureau of Economic Analysis (BEA) of the US Department of Commerce, and are seasonally adjusted.  Note that all levels of government are included here – federal, state, and local.  We will examine below spending at the federal level only, as well as spending including transfer payments.

This government spending has fallen by 5 1/2% in real terms by the end of the fifth year (the 20th quarter) of Obama’s term in office.  It rose by 2 1/2% during Obama’s first year, which one might note is similar to the increases seen by that point under Carter, Reagan, and Bush I, and with a significantly greater increase by that point under Bush II.  Spending during Obama’s term has since been falling steadily, leading to the fiscal drag referred to above, to a point where it is now 8% lower in real terms than it was in his first year, or a net 5 1/2% fall from when he took office.

There has been no such fall in government spending under any other presidential term since Carter.  The closest was spending during the Clinton period, but there was still a 3% rise by the end of his fifth year in office.  The increases by the end of the fourth year under Carter and Bush I (single term presidencies) were 8% and 6 1/2% respectively.  And the increases by the end of the fifth year in office were 13% during the term of Bush II, and by a full 21% in real terms under Reagan.  Government spending also continued to grow under Bush II and Reagan, reaching increases of 21% and 33% respectively by the end of their eight years in office.

Yet Reagan and Bush II are seen as small government conservatives, while Obama is deemed by conservatives to be a big spending liberal.  The facts simply do not support this.

C.  Government Spending Including Transfers

Government spending for the direct purchase of goods and services (used for consumption or investment), reviewed above, is a direct component of GDP demand.  When there are substantial unemployed resources (as now), such government spending will have a significant positive impact in spurring economic expansion.  As was discussed in an Econ 101 post on this blog, under such circumstances the fiscal multiplier will be positive and high.  Hence the fiscal drag from the cut-back in government spending during Obama’s term in office has kept the recovery below what it would have been.

But there is also government spending on transfers to households (such as for Social Security, food stamps, or unemployment insurance).  Such transfers are ultimately spent by households for their consumption of goods and services (or will in part be saved, including through the pay-down of debt such as mortgage debt).  It will enter into GDP demand by way of the spending of households for consumption, and the impact on GDP will depend on the behavior of households in deciding what share of those transfers they will spend or save.

Such spending rose more sharply during Obama’s first year in office, as he faced an economy in free fall as he was taking his inaugural oath:

Govt Spending, Total incl Transfers, by Presidential Term, Quarterly

The economy was losing 800,000 jobs per month at that time, pushing the unemployment roles up rapidly and plunging the incomes of many in the population to levels where they qualified for food stamps.  Government spending including transfers therefore rose by almost 9% by the third quarter of 2009, and reached a peak of 9.8% in the third quarter of 2010.  Since then, however, total government spending including transfers has been modestly falling, and is now 7 1/2% above where it was when Obama took office.

[Note all figures are in real terms.  The personal consumption expenditures deflator in the NIPA accounts was used to adjust transfer payments for inflation.]

Only during the Clinton period did one see a modestly smaller increase, of about 6 1/2%.  But there was a 16 1/2% increase in such spending at the same point in the term of Bush II, and an increase of over 22% under Reagan.  It was also higher by the end of their fourth years in office for both Carter and Bush I.

The differences are not small.

D.  Federal Government Spending on Consumption and Investment

What matters to the economy when demand is inadequate and unemployment is high is spending at all levels of government.  Yet while we commonly blame the president in office for the performance of the economy, they at best can only influence the federal budget (and influence it only partially, as Congress decides on the budget).  Hence it may be of interest also to examine the paths of only federal government spending.

Such federal spending on direct consumption and investment at first rose during the Obama term, reaching a peak 8% increase in the third quarter of his second year in office.  It then fell sharply, to a point where it is now 5 1/2% below where it was when Obama took office:

Federal Govt Spending on Goods & Services by Presidential Term, Quarterly

The initial increase in federal spending was in part due to the stimulus package that served to restart the economy (GDP was falling from 2008 through the first half of 2009; it then began to recover).  Note that while federal spending rose by 8% by the third quarter of 2010, overall government spending (including state and local) rose only by 2 1/2% at that point.  State and local government was cutting back, as they were forced to do by the balanced budget requirements of many of them, so federal spending and the stimulus it could provide was partially being offset by their cut-backs.

But after this initial increase in the first two years of the Obama presidency, federal spending has been cut substantially, to the point where it is now 5 1/2% below in real absolute terms where it was when Obama took office.  Federal spending also fell during the Clinton term, by 11% at the same point in his term.  In contrast, federal spending rose sharply under Bush II (by 27% at the same point) and especially under Reagan (by over 31%).

E.  Federal Government Spending Including Transfers

Finally, federal government spending including transfers:

Fed Govt Spending, Total incl Transfers, Quarterly

[Technical Note:  Federal government transfers in the NIPA accounts include transfers to individuals as well as transfers to the states or localities for all purposes, including road construction, for example.  Such intra-government transfers are netted out in the accounts when government as a whole - federal, state, and local - is examined, so that remaining government transfers are then solely transfers to individuals, such as for Social Security.]

Such spending is now lower under Obama than under any of the presidencies examined, including Clinton.  Federal spending including transfers rose to a peak in 2010 of 10% above where it was when Obama took office, but has since declined to just 1% above that level.  It was 4% higher at that point in Clinton’s term, 23% higher at the point in the term of Bush II, and 25 1/2% higher at that point in the term of Reagan.

F.  Conclusion

Republicans in Congress and conservatives generally continue to criticize Obama as being responsible for runaway government spending.  But after an initial modest increase in the first two years of his term, as he sought to stop the economic free fall he inherited on taking office (and succeeded), government spending has come down under any measure one takes.  The resulting fiscal drag has held back the economy, leading to an only slow recovery.  And the fiscal drag during Obama’s term in office is in sharp contrast to the large increases in government spending observed during the terms of George W. Bush and especially Ronald Reagan. Yet they have been viewed as small government conservatives.