At the Associated Press on Friday afternoon, Andrew Taylor, who it should be noted covers Congress and is not routinely on the economics or business beat, relayed an Obama administration prediction that economic growth in 2014 will come in at 2.6 percent.
Taylor noted that this estimate, lowered from 3.3 percent, came about because of "the unexpected 2.9 percent drop in gross domestic product in the first quarter of this year when unusually severe weather dinged the economy." Besides failing to note that the contraction was an annualized drop (the actual contraction was about 0.7 percent), he didn't tell readers how absurdly strong growth will have to be during the rest of the year to hit that 2.6 percent target; it works out to an annualized 4.5 percent during each of this year's remaining unreported quarters. Perhaps the AP reporter isn't economically astute enough to recognize how unlikely that is — or worse, he recognized it and let it pass unchallenged.
Here are excerpts from Taylor's report, whose main purpose was to celebrate an estimated $100 billion drop — wowie zowie — in this year's federal budget deficit to "only" $583 billion and which seems to have been written primarily to please Dear Leader (bolds and numbered tags are mine):
WHITE HOUSE: 2014 DEFICIT TO DROP $100B
The government's budget deficit will drop to $583 billion this year, the lowest level of President Barack Obama's tenure, the White House said Friday.
Last year's deficit was $680 billion. The latest update from the White House budget office is also $66 billion less than the administration predicted earlier this year when releasing the president's budget.
Obama presided over trillion-dollar-plus deficits during his first term as the economy struggled to recover from a deep recession and financial crisis. [1] Attempts to strike deals on spending cuts and revenue increases with GOP leaders such as House Speaker John Boehner of Ohio have failed, though Obama was successful in muscling through a tax increase on wealthier earners in early 2013. [2] Tight spending on annual agency budgets is also responsible for lower deficits. [3]
... "Under the president's leadership, the deficit has been cut by more than half as a share of the economy, representing the most rapid sustained deficit reduction since World War II, and it continues to fall," said acting White House budget director Brian Deese. "At the same time, our economy is moving forward and businesses are creating jobs. Businesses have added nearly 10 million new jobs over the past 52 months."
The White House has also lowered its economic growth forecast for the current year to 2.6 percent [4], reflecting the unexpected 2.9 percent drop in gross domestic product in the first quarter of this year when unusually severe weather dinged the economy. [5] Its earlier prediction was for a 3.3 percent hike in GDP.
... Obama's budget released in March called for a variety of tax increases and promised new help for the working poor and additional money for road-building, education and research. [6] It also pulls back from controversial cuts to Social Security cost-of-living increases that had angered Democrats.
Notes:
[1] — The correct statement would be that Obama and the Democrat-controlled Congress created four straight years of trillion-dollar deficits (first and second here; third and fourth here) by passing what they told the nation was a temporary "stimulus" bill. The increased spending levels caused by the stimulus were never pulled back. For nearly six years, the government has been spending roughly one-third more annually than it did in fiscal 2007.
[2] — What a heroic guy, courageously "outmuscling" John Boehner to take more money out of Americans' pockets. As I noted earlier today, that 2013 tax increase was the largest in the past two decades. It wasn't about "outmuscling"; it was about using every vindictive, intimidating weapon at hand to artificially whip up public sentiment against a Republican Congress which was for once trying to do its job.
[3] — Given the annualized contraction of 2.9 percent in the first quarter, the economy will have to average 4.5 percent annualized growth for the next three quarters to end up with full-year growth of 2.6 percent. No one outside the fever swamps in the White House is predicting that.
There is an outside chance that much of the first-quarter contraction may be washed away in the comprehensive revisions being made to GDP (it could also get even worse). Those will be announced on July 30 when the government issues its first version of second-quarter results. But even if the first quarter ends up coming in at a breakeven level, the economy will have to turn in three consecutive quarters of 3.5 percent growth to get to 2.6 percent for the full year. Almost one else is predicting that. Many estimates for the second quarter have already been knocked down to 3.0 percent or 2.5 percent. I don't think they're done marking things down.
[4] — There has been virtually no spending restraint in any major category, except of course in defense. Here is the situation through the first nine months of the current fiscal year per the Congressional Budget Office:
Current year spending excluding defense and unemployment insurance has been $2.027 trillion ($2.496 T minus $432 billion minus $37 billion). Last year's comparable figure was $1.980 trillion ($2.494 T minus $458 billion minus $56 billion). Already stratospheric spending in all other areas is up by 2.4 perccent ($47 billion dollar increase divided by last year's $1.980 trillion).
Taylor's claim of "tight spending on annual agency budgets" is a fantasy.
[5] — As noted previously, the argument that bad weather caused the first-quarter contraction is another fantasy. That the economy's performance has largely been influenced by negative non-weather factors was recently confirmed the CEOs of Wal-Mart and The Container Store.
[6] — The promised areas of spending in the stimulus bore no resemblance to where the money was really spent. Why should anyone believe that the administration will spend new money as intended this time?
The administration's full-year growth estimate, while not impossible, is so unlikely that Taylor should have told readers that it's highly unlikely. Instead, low-information AP-subscribing outlets and news consumers will buy the hogwash. Mission accomplished, I guess.
Cross-posted at BizzyBlog.com.
