It's still all about the economy

Obamanomics is finished. And after last quarter's gross domestic product report from the Commerce Department, so might be Barack Obama's chances of a second term in office.

Beginning in mid-2009, the American economy scored mainly unimpressive growth figures that nevertheless usually trended upward. With the exception of the 2009 fourth quarter figure of 5 percent, which was mostly comprised of inventory adjustments rather than full growth, annualized numbers stayed between 2 percent and 3 percent each quarter.

Using those figures, the Obama administration claimed that the American economy had turned a corner and that a real recovery was underway. Jobs still had not returned, but the White House argued (correctly) that job growth is a lagging indicator. The administration also argued (incorrectly) that the tendency of businesses to hold capital rather than invest it was an irrational choice considering the opportunities for real growth in the expanding recovery.

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The Commerce Department threw a deluge of cold water on those claims at the end of April in a report that was almost immediately eclipsed by the news of Osama bin Laden's demise at the hands of Navy SEALs in Pakistan. The first-quarter GDP growth rate plunged to 1.8 percent, a steep change from the previous quarter's middling 3.1 percent growth rate. Even more ominously, imports increased by 4.4 percent vs. a 2010 fourth quarter decrease of 12.6 percent, and exports hit their lowest number (a 4.9 percent growth rate) since mid-2009. Meanwhile, personal consumption expenditures dropped from fourth quarter's 4 percent growth rate to 2.7 percent.

The real story, though, comes near the end of the April Commerce Department report. Federal government spending dropped 7.9 percent after staying nearly even in the fourth quarter. National defense spending dropped 11.7 percent. That drop in spending explains why previous growth rates had been artificially inflated. It also explains why jobs have not returned.

Actually, it gets even worse than that. After accounting for inventory growth, real final sales of domestic product (GDP minus changes in domestic inventories) was 0.8 percent — barely above recession level. This indicates that even though sales of durable goods dropped from a 21 percent increase in the fourth quarter to 10 percent in the first quarter of 2011, businesses still overbought — which will negatively impact second-quarter orders and growth.

Eight quarters have passed since Obama pushed through his $800 billion stimulus bill. Three quarters have passed since the White House announced its "Recovery Summer." The only change we have had to the economy in that period has been the slow burst of the government-spending bubble that the White House hoped would convince Americans that its economic policies were working.

Now that Obamanomics has run out of stimulus cash, the true measure of the economy is plainly visible, and it's obviously sputtering. With a 1.8 percent annualized GDP growth rate and bulging inventories reducing the need for new orders, we will not only fail to add jobs in coming months, we may start losing some of the jobs we added in April and March.

If growth continues to sputter for another two quarters, voters will rebel at the thought of another four years of economic mismanagement. Don't be surprised to hear the president demand another round of heavy stimulus spending, not because it works to repair the economy, but because it helps to temporarily make it appear as though Obamanomics works. After this very expensive lesson in the failure of Keynesian economics, though, House Republicans won't buy a hair-of-the-dog approach, and voters won't be fooled again.