Yes, this is adjusted for inflation, but using the gross domestic product price index, which has not risen quite as fast as the better-known consumer price index (7.6% yoy in the second quarter versus 8.6% for the CPI). And yes, I’m measuring growth here not just by GDP, but by averaging GDP and another metric tracked by the BEA, Gross Domestic Income. In theory, GDP and GDI should be the same, but they are estimated from different sources and show very different economic developments for the US so far this year. GDP fell 1.6% yoy in the first quarter and 0.6% in the second, while BDI rose 1.8% and 1.4%, according to the latest BEA estimates.
There have been many complaints lately that the Biden administration and the media are shifting the target posts used to define recessions by looking beyond these two consecutive quarters of negative GDP growth at other indicators such as employment, industrial production and real incomes that this show continuous growth. In reality, the National Bureau of Economic Research was the semi-official arbiter of when U.S. recessions begin and end long before there was anything like GDP, and economists there have continued to focus on more frequent and less susceptible data series than the subsequent revision quarterly GDP figures.
By using an average of GDP and GDI to measure economic growth, I’m really shifting the target posts, but I think it’s justified. Interest in the metric, which the BEA mentioned in its quarterly GDP reports in 1998, began to grow in the late 2000s after Jeremy Nalewaik, an economist, then at the Federal Reserve Board and now at Goldman Sachs, said so in a 2006 working paper argued The GDI “detected the onset of recessions better” than GDP. NBER’s Business Cycle Dating Committee first referenced GDI in one of its 2008 recession announcements. 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 currently shows annualized economic growth of 2% in the first quarter of this year and 1.8% in the second . In 2015, the BEA began reporting the simple average of GDP and GDI, which I use here. This currently shows growth of 0.1% in the first quarter and 0.4% in the second quarter.
The first GDI estimate for each quarter comes a month later than the first GDP estimate and until that changes, it’s hard to imagine GDI or GDP/GDI average crowding out GDP in the public debate. But economists and business journalists, myself included, are paying more and more attention to these measures quarter by quarter. Right now, this is done to make the Biden administration’s economic performance look better than GDP alone. Whatever it’s worth, it also makes economic growth look better under its predecessor.
Measured in real GDP alone, growth under Biden is 0.6 percentage points slower than the GDP/GDI average — and 1.3 points below the 4% growth rate for GDP. It’s still the best since the Clinton years. For Donald Trump, the slump in growth is smaller, but it puts him last among the presidents listed here. Quarterly GDP data is only available up to 1947, which is why this chart starts with Eisenhower, but annual data shows that GDP growth under Trump was the slowest since Herbert Hoover’s unsuccessful presidency.
I wrote a column with an appropriate headline last year and heard from readers who felt it was unfair to Trump for facing the historic misfortune of a once-in-a-century pandemic. It is true that the pandemic was unfortunate and that during Trump’s last year in office, the US’s economic performance actually did well compared to other rich countries. But while pre-pandemic growth under Trump was a much more respectable annualized 2.6% for GDP and 2.5% for the GDP/GDI average, past presidents have also faced economic setbacks they did not create themselves, and without adjusting (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, a lot can still happen during Biden’s tenure. At this point in Trump’s presidency, annualized GDP/GDI growth was 2.8% and GDP growth was 3.1%. After that, it slowed down, even before the pandemic. Whether or not the US economy goes into recession, growth has clearly shifted downward this year. In the 21st century to date, US GDP/GDI has grown 2% annualized and GDP has grown 1.9%. I would suspect that the longer Biden is in office, the closer the growth rate will get to those numbers.
Economic growth during a presidential term is also an erroneous measure of economic impact. There’s the role of luck already discussed, the built-in constraints on GDP and similar metrics that reflect how economic rewards are shared and whether they are sustainable, and the simple fact that political decisions under a president affect growth well after that president can leaves the White House. I can’t tune into all of these things, but I can at least use several different methods of measuring growth to make it clear that no single number is correct. One approach is to compare GDP to the average of GDP and GDI. Another option is to delay the measurement and start the measurement from the quarter before a President takes office or the quarter after.
For presidents who have 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 disparity in growth rates can be wide — though past growth under Biden is the fastest since Clinton.
Population growth is an important factor influencing economic growth, which, while not entirely out of a president’s control, appears to be primarily determined by other forces. Factoring this in by looking at per capita economic growth changes the picture again.
This seems rather unfair to Dwight Eisenhower, since the rapid population growth during his presidency consisted almost entirely of babies who were not yet really able to contribute much to the economy. But it puts the economic performance of recent presidents in a justifiably more favorable light. And what do you know: by that metric, growth under Biden is the fastest since Lyndon Johnson presidency.
I wouldn’t do too much here either! 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 faster under the Biden presidency than under any other president since Jimmy Carter. People really hate inflation. Until it slows, Biden won’t get much credit for the pace of economic growth — and to bring it down, that pace of growth may need to slow even further. More from other authors at Bloomberg Opinion:
Life in America is good, even by European standards: Tyler Cowen
This Economy Proves Too Difficult For Economists: Jared Dillian
Let’s not mince our words as the economy heads south: Daniel Moss
This column does not necessarily represent the opinion of the editors or of Bloomberg LP and its owners.
Justin Fox is a Bloomberg Opinion columnist covering companies. A former executive editor of Harvard Business Review, he has written for Time, Fortune, and American Banker. He is the author of The Myth of the Rational Market.
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