The government today released the first of three reports on the nation’s economic growth for the third quarter of 2016. Better than expected news. On an annualized basis, growth in “real” gross domestic product—that is, inflation-adjusted, seasonally adjusted growth—hit 2.9 percent, far above the three weak previous quarters, and the best showing in two years. Growth in the second quarter was just 1.4 percent, 0.8 percent in the first.
As always, officials at the Bureau of Economic Research cautioned that this initial GDP report is based on incomplete data. As better information becomes available, revisions will be made in subsequent third-quarter reports released in November and December. As history shows, these revisions can be substantial either up or down.
Although some details are not as encouraging as the headline GDP number, one thing the report will do is undermine efforts by Republicans to claim the economy is falling apart, something Donald Trump and others in the party have been trying to impart to voters during the presidential campaign. Combined with recent news that overall wage growth finally took off in 2015, the GDP report is good news for Hillary Clinton and down-ballot Democrats.
But while being justifiably pleased at this positive showing, Democrats should take note that even if this number holds or proves to be yet better in the subsequent reports, it is only a single quarter and trends are what really matter. If similar growth happens for another two or three quarters, it would be proof that the U.S. economy has finally broken out of what has been both the longest and weakest recovery from a recession in 67 years. The overall growth rate since mid-2009 when the GDP recovery began has been just 2 percent. As can be seen in the chart from Trading Economics above, we’ve been here before during the recovery, showing good quarterly growth only to retreat later.
And there are some cautionary signs within the GDP report as well. For example, consumer spending, which drives two-thirds of the economy, fell from 4.3 percent in the second quarter to 2.1 percent in the third. And residential fixed investment, which has been a positive driver of the economy for two years, fell 6.2 percent. But exports grew by 10 percent. Thus, like so many such reports in the past seven years, this was a mixed bag.
There is also another caution. While there is no indications that we are headed into another recession any time soon, we are approaching the place on the historical timeline where one can be expected. Indeed, the longest period between recessions since 1901 was 10 years, and most such periods have been far shorter. If the economy managed to match the record, we would see a new recession started around June 2019, not a propitious happenstance for a President Hillary Clinton.
Within her stated goals, however, are a means to extend and expand the growth of the past seven-plus years: the program of upgrading the decaying U.S. infrastructure and simultaneously accelerating the green transformation of the energy and transportation sectors of the economy. These measures would not merely be good for the climate, they would provide stimulus for millions of well-paying jobs and lay the foundation for an economically and environmentally sustainable economy for decades to come.
Naturally, that would require cooperation from politicians in the Congress who have shown themselves to be highly uncooperative for the past eight years and have already hinted that they will do all they can to screw things up for the next eight. How to overcome that opposition to saner policies will be one of the biggest challenges Clinton has ever faced.