|Obama Defies Pessimists as Rising Economy Converges With Stocks By Mike Dorning|
March 10 (Bloomberg) -- The political consensus may be that President Barack Obama’s handling of the economy has been weak. The judgment of money in all its forms has been overwhelmingly positive, and that may be the more lasting appraisal.
One year after U.S stocks hit their post-financial-crisis low on March 9, 2009, the benchmark Standard & Poor’s 500 Index has risen more than 68 percent, and it’s up more than 41 percent since Obama took office. Credit spreads have narrowed. Commodity prices have surged. Housing prices have stabilized.
“We’ve had a phenomenal run in asset classes across the board,” said Dan Greenhaus, chief economic strategist for Miller Tabak & Co. in New York. “If he was a Republican, we would hear a never-ending drumbeat of news stories about markets voting in favor of the president.”
The economy has also strengthened beyond expectations at the time Obama took office. The gross domestic product grew at a 5.9 percent annual pace in the fourth quarter, compared with a median forecast of 2.0 percent in a Bloomberg survey of economists a week before Obama’s Jan. 20, 2009, inauguration. The median forecast for GDP growth this year is 3.0 percent, according to Bloomberg’s February survey of economists, versus 2.1 percent for 2010 in the survey taken 13 months earlier.
“You have to give them -- along with the Federal Reserve - - a lot of credit,” said Joseph Carson, director of economic research at AllianceBernstein LP in New York. “A year ago, there was panic, as well as concern. And a lot of the expectations were not only that we were going to have declines in activity but they would stretch all the way to 2010, if not 2011.”
Job Losses Ease
Since then, monthly job losses have abated, from 779,000 during the month Obama took office to 36,000 last month. Corporate profits have grown; among 491 companies in the S&P 500 that reported fourth-quarter earnings, profits rose 180 percent from a year ago, according to Bloomberg data. Durable goods orders in January were up 9.3 percent from a year earlier. Inflation is tame, and long-term interest rates remain low.
Still, the economy has become a political burden for Obama. Voters give his administration little credit for its performance, while the unemployment rate remains high, at 9.7 percent in February.
Public opinion of Obama’s handling of the economy has gone from 59 percent approval in February 2009 to 61 percent disapproval this February, according to Gallup polls.
Critical of Deficit
The budget deficits the administration has run up have stirred criticism from investment managers and economists, as well as voters. The Congressional Budget Office projects Obama’s spending proposals would produce a record $1.5 trillion budget deficit this year and a $1.3 trillion deficit in 2011.
The investment returns and economic data don’t impress some Obama critics.
“Coming off a level that was ridiculously low isn’t much to boast about,” said Dean Baker, co-director of the Washington-based Center for Economic and Policy Research. “What most people care about is the economy creating jobs. It’s still not.”
Mark Zandi, chief economist at Moody’s Economy.com, said the public’s opinion of the economy is likely to improve as the gains companies have made begin to translate into more jobs and higher wages.
“Businesses are doing very well but households have yet to benefit,” Zandi said. “Households will eventually benefit, but they’ll have to see it before they believe it.”
300,000 Jobs Seen
The U.S. may add as many as 300,000 jobs in March, the most in four years, David Greenlaw, chief fixed-income economist at Morgan Stanley in New York, said in a Bloomberg Radio interview.
Zandi said the economic rebound is largely a result of the policies of the White House and Federal Reserve. He cited the bank bailout, the Fed’s low-interest-rate policy and support for credit markets, and the Obama administration’s stimulus plan, bank stress tests and backing of Fannie Mae and Freddie Mac.
“When you take it all together, the response was massive and unprecedented and ultimately successful,” Zandi said.
Phil Swagel, who was assistant Treasury secretary for economic policy in George W. Bush’s administration, considers himself a critic of Obama, though he said the White House policies were crucial.
“They could have done a better job, but their economic policies, including the stimulus, have helped move the economy in the right direction,” said Swagel, now an economics professor at Georgetown University’s McDonough School of Business.
While jobs have been slow to come back even as GDP is growing, the gains in productivity during the past year will strengthen the economy, said Greenhaus of Miller Tabak. Productivity grew at a 6.9 percent annual pace in the fourth quarter, capping the biggest one-year gain since 2002.
While small businesses still have difficulty getting loans, credit markets have thawed. Spreads on investment-grade corporate bonds have narrowed from 5.13 percentage points on the day Obama took office to 1.63 percentage points on March 8, according to Barclays Capital.
Rates on 30-year fixed mortgages have dropped from an average 5.20 percent on Inauguration Day to 5.03 percent on March 8, according to Bankrate.com.
Housing prices, which dropped since 2007 and proved a drag on the economy, have firmed. The median sales price for existing homes in January was the same as a year earlier.
International currency markets are bullish on the dollar, which has rallied more than 8 percent since Nov. 25, according to the Intercontinental Exchange’s Dollar Index. And commodity prices are up more than 32 percent since Obama took office, according to the UBS Bloomberg Commodity Index.
“There’s definitely legs in this recovery,” said John Silvia, chief economist for Wells Fargo Securities. “There’s progress being made at the national level. But in their own situations, a lot of people are still struggling.”