Yes, this is adjusted for inflation, albeit using the gross domestic product price index, which hasn’t been rising quite as fast as the better-known consumer price index (7.6% year-over-year in the second quarter versus 8.6% for the CPI). And yes, I measure growth here using not GDP alone but the average of GDP and another metric tracked by the BEA, gross domestic income. In theory GDP and GDI should be equal, but they are estimated from different sources and so far this year are showing very different economic trajectories for the US. GDP fell at a 1.6% annualized rate in the first quarter and 0.6% in the second, according to the latest BEA estimates, while GDI rose 1.8% and 1.4%.
There have been a lot of complaints lately that the Biden administration and the media are shifting the goalposts on how recessions are defined by looking past those two consecutive quarters of negative GDP growth to other indicators such as payroll employment, industrial production and real incomes that show continued growth. In reality, the National Bureau of Economic Research has been the semi-official arbiter of when US recessions start and end since well before there was such a thing as GDP, and economists there have continued to focus on data series more frequent and less susceptible to subsequent revision than the quarterly GDP numbers.
By using an average of GDP and GDI to measure economic growth I really am shifting the goalposts, but I think it’s justified. Interest in the metric, which the BEA began mentioning in its quarterly GDP reports in 1998, began picking up in the late 2000s after Jeremy Nalewaik, an economist then at the Federal Reserve Board and now at Goldman Sachs, argued in a 2006 working paper that GDI “has done a better job recognizing the start of recessions” than GDP. The NBER’s Business Cycle Dating Committee first referenced GDI in one of its recession announcements in 2008. In 2013 the Federal Reserve Bank of Philadelphia began reporting what it calls GDPplus, which combines GDP and GDI in a “statistically optimal” way and is currently showing annualized economic growth of 2% in the first quarter of this year and 1.8% in the second. In 2015 the BEA started reporting the simple average of GDP and GDI that I use here. This currently shows growth of 0.1% in the first quarter and 0.4% in the second.
The first GDI estimate for each quarter comes out a month later than the first GDP estimate, and unless that changes it’s hard to imagine GDI or the GDP/GDI average supplanting GDP in public discussion. But economists and economic journalists, myself included, have been giving these measures more and more attention with each passing quarter. Right now, this happens to makes the economic performance of the Biden administration look better than GDP alone does. For whatever it’s worth, it also makes economic growth under his predecessor look better.
Measured by real GDP alone, growth under Biden is 0.6 percentage points slower than by the GDP/GDI average — and 1.3 points below the 4% growth rate for GDI. It’s still the best since the Clinton years. For Donald Trump, the growth hit is smaller but puts him in last place among the presidents listed here. Quarterly GDP data is only available back to 1947, which is why this chart starts with Eisenhower, but annual data show that GDP growth under Trump was the slowest since Herbert Hoover’s less-than-successful presidency.
I wrote a column last year with a headline to that effect, and heard from readers who felt that it was unfair to Trump because he faced the historic bad luck of a once-in-a-century pandemic. It’s true that the pandemic was bad luck, and that US economic performance during Trump’s final year in office actually stacked up well versus other rich countries. But while growth under Trump before the pandemic was a much more respectable 2.6% annualized for GDP and 2.5% for the GDP/GDI average, earlier presidents also faced economic setbacks not of their own making, and without adjusting for those (and I’m not sure how I would do that) it doesn’t seem right to give Trump special treatment in such a comparison.
Of course, lots can still happen during Biden’s tenure, too. At this point in Trump’s presidency, GDP/GDI growth was 2.8% annualized and GDP growth 3.1%. It slowed after that, even before the pandemic. Whether the US economy falls into recession or not, growth has clearly downshifted this year. So far in the 21st century, US GDP/GDI has grown at a 2% annualized rate and GDP 1.9%. I would guess that the longer Biden is in office, the closer the growth rate will get to those numbers.
Also, economic growth during a president’s time in office is a flawed measure of economic impact. There’s the already-discussed role of luck, the built-in limitations of GDP and similar measures in reflecting how economic rewards are shared and whether they’re sustainable, and the simple fact that policy choices under one president can affect growth well after that president leaves the White House. I can’t adjust for all of those things, but I can at least use several different ways of measuring growth to make clear that no single number is right. Contrasting GDP with the average of GDP and GDI is one approach. Another is to time-shift, starting measurement from the quarter before a president takes office or the quarter after.
For presidents who served two full terms, these shifts don’t change the picture much. For those with very short tenures, such as Gerald Ford and Biden so far, the differences in growth rates can be large — although however you slice it growth so far under Biden remains the fastest since Clinton.
Population growth is an important factor affecting economic growth that, while not entirely outside of a president’s control, seems determined mainly by other forces. Adjust for that by looking at per-capita economic growth, and the picture changes yet again.
This seems quite unfair to Dwight Eisenhower, given that the rapid population growth during his presidency consisted almost entirely of babies who weren’t really in a position yet to contribute much to the economy. But it puts more recent presidents’ economic performance in a justifiably more favorable light. And whaddya know: by this measure, growth under Biden is the fastest since the presidency of Lyndon Johnson.
Again, I wouldn’t make too much of that! But it’s so different from current public perceptions of the economy that it’s worth pausing to understand why that might be.
Consumer prices have risen at a faster pace so far in the Biden presidency than under any president since Jimmy Carter. People really hate inflation. Until it slows, Biden won’t be getting a lot of credit for the pace of economic growth — and bringing it down may require slowing that growth pace even more.More From Other Writers at Bloomberg Opinion:
Life Is Good in America, Even by European Standards: Tyler Cowen
This Economy Is Proving Too Hard for Economists: Jared Dillian
Let’s Not Mince Words While the Economy Heads South: Daniel Moss
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Justin Fox is a Bloomberg Opinion columnist covering business. A former editorial director of Harvard Business Review, he has written for Time, Fortune and American Banker. He is author of “The Myth of the Rational Market.”
More stories like this are available on bloomberg.com/opinion
©2022 Bloomberg L.P.