Two years ago, Obama took the oath of office. This seems like a good time to assess his presidency in terms of the economy and see how he stacks up relative to other recent presidents. Clearly Obama took charge during a difficult time for the economy, probably more challenging than any other recent president with the possible exception of Ronald Reagan. However the economic challenges facing Obama were certainly much different than those facing Reagan. In some senses it is impossible to be totally fair to any president in looking at his performance relative to other presidents since they all were in office under different circumstances. It is also true that no one can swim in the same river twice, even if you do visit your favorite swimming hole along its shores on a regular basis. Still, to assess any performance, one has to compare it to something, and other recent presidents seem like a reasonable exercise.
First, let’s take a look at employment. The data in the table below shows four measures of the employment picture. The change in total employment, the change in private sector employment, the percent change in the unemployment rate (i.e. going from 5% unemployment to 6% unemployment shows up as a 20% increase) and the change in the percentage of the population that is actually working. This is called either the employment-population ratio (Empop) or the employment rate. One of the things that Obama has been most criticized for is failure to focus on jobs and to get the economy moving again. How fair is the criticism?
Well if we use the February data just after the inauguration as the starting point (the data is collected mid month, so the January data would be conditions under his predecessor), Obama lands smack in the middle of the most recent five presidents in terms of the percentage change in total employment. In each case the end point is the December following the mid term election. Yes, the number of jobs in the economy has declined since Obama took office, but under G.W. Bush, and especially under Reagan, the total number of jobs had fallen by more at the same point in their presidencies. If one wants to exclude government jobs, and just look at private sector employment, the ranking is unchanged, but GW Bush looks worse than Reagan. Clearly the job performance has not been as good as under Clinton, or even under GHW Bush, but Obama has clearly done a better job at creating jobs, or to be more precise, a less worse job at losing jobs than either his immediate predecessor or Reagan.
Four of the five recent presidents saw the unemployment rate rise during their first two years in office, even the first President Bush who saw jobs increase on balance during the period. The unemployment rate was lower when the first President Bush took office, which made the percentage increase larger than that of Obama. The unemployment rate, though, can be influenced by the percentage of the population that is in the workforce. Clearly that will never be close to 100%. For that to happen, all child labor laws would have to be repealed and the entire concept of retirement would have to go away. Still, one way or another, it is the people who are working at any given time who support those who are not working. The civilian participation rate (the percentage of the population in the workforce, either employed or unemployed) does change over time with changing demographics.
It was on a secular rise from the mid sixties through the end of the 20th century, as first the baby boom generation came of working age, and then women entered the workforce in great numbers. Since 2000 the participation rate has been trending downward. As the participation rate was rising, the economy had to create more jobs just to keep the unemployment rate from rising. As the participation rate falls, fewer new jobs are needed to keep the unemployment rate unchanged. The employment rate corrects for this, and is a greatly under appreciated economic statistic. Those demographic changes made life much easier for Obama and especially tough for the first President Bush in terms of the unemployment rate. Clinton was still the only one of the last five presidents to see the employment rate rise in his first two years, but Obama slips from second place in terms of the unemployment rate change to fourth place when one looks at the employment rate. Either way you look at it though, Clinton still comes out on top, and Reagan dead last among the five. On the empop though Obama looks almost as bad.
Percentage changes are obviously greatly influenced by the starting level. In looking at changes, one also should look at the absolute change (i.e. subtract the starting level, rather than dividing by it). Given that the population is growing over time, one would expect that the number of jobs added each month should increase as well. That’s not much of a factor between any two months, but when looking over the span of 30 years it does become significant. In this table a rise in the unemployment rate from 5% to 6% shows up as 1. The second table looks at the absolute changes in the same four measures of employment. The rankings change a little bit under this way of looking at things.
Mostly the second President Bush looks worse than Reagan in terms of jobs lost, especially private sector jobs lost. Obama is still in third place, but is much closer to Reagan in terms of jobs lost. Obama matches Reagan for the worst decline in the employment rate (empop), with George W. Bush close on their heels. Clinton is still well out in front in terms of job creation and he actually saw the percentage of the population working rise, unlike the other four. He also saw the unemployment rate fall. The first President Bush saw the unemployment rate rise slightly less than Obama did, while the rise in the unemployment rate was significantly greater under both Regan and the second President Bush.
To some extent one does have to ask if it is fair to judge the performance of a president from almost the very day he takes office. The U.S. economy is a very large ship and does not turn around on a dime. It takes a few months to get his people through the Senate confirmation process (longer in the Obama case than in previous cases) and the budget year is already one third of the way through when the new president puts his hand on the Bible. How much of a lag is proper before you start to put the performance on the incumbent president’s “tab” rather than his predecessors is open to debate? I think using February as a starting point is probably too quick. Waiting until the end of the fiscal year (end of September) is probably too long. As a compromise, I picked May as a starting date. Perhaps equally valid arguments could have been made for April or June, but in any case, the same ground rules apply to all five presidencies.
So how do things change if we use May as a starting point.
The rankings of the five do not change in terms of employment growth, but the magnitude changes significantly, especially for Obama. Just “cutting out” the first three months brings the drop in both total and private sector employment to near zero, rather than a decline of over 1.5% on both counts. The shorter time frame shrinks the Clinton performance in job creation some, but it is still the strongest by a wide margin. The first President Bush is still in second place, but fell further behind. Reagan is still the worst of the five. The second president Bush is still second from the bottom in terms of total employment, but moves into fourth place, rather than last, when it comes to the percentage change in private employment. Reagan captures that dubious crown when those first three months are cut away from the scorecard.
In terms of the change in the unemployment rate, Obama improves significantly, with an unchanged rate. Clinton is still the only one with a falling unemployment rate. However, when we look at empop, Obama and the second President Bush are virtually tied. Reagan actually looks worse on empop if the first three months of his presidency are removed. Clearly demographics have been on Obama’s side when it comes to the unemployment rate. Clinton still increased the percentage of the population working, regardless if one measures his performance from February or from May.
If we look at the absolute changes, the story is pretty much the same as when we look at the percentage changes. Obama is in the middle of the pack, with a far smaller decline in both total and private employment than is the case if he is measured from February. On both counts he did better than either Reagan or the second President Bush, but significantly worse than either Clinton or the first President Bush.
In terms of the unemployment rate, Reagan and both Bushes saw significant increases during their first two years in office (minus the first three months), while Clinton saw a significant decline. Obama saw no change in the unemployment rate between the May after he took office and the December following the mid term election. In terms of empop, he looks just slightly better than the second President Bush but significantly worse than either the first President Bush or Clinton.
Thus, on the basis of the employment situation, one has to say that Obama is far from the worst president we have ever had, even among the presidents of the last 30 years. It is also fair to say that nobody should be breaking out the chisels to put his face on Mt. Rushmore. He is squarely in the middle of the pack. The two that fare worst in this analysis, Reagan and the second Bush both went on to win re-election. The second term proved to be quite successful for Reagan economically, but proved to be a disaster for the second president Bush. The next two years should tell if it is “Morning in America” again, or a time of mourning for America. Reagan is generally looked back on now as a pretty good President, even begrudgingly admired by many on the political left. However if he had left office after two years, his place in economic history would be closer to that of Herbert Hoover. We do not know what the next two years will bring. Based on the record of the first two years, we should dial down the hyperbole.
While Obama took office under far more trying economic circumstances than did Clinton or the first President Bush, generally he did worse than they did on the employment front. He also has done a much better job than either Reagan or the second Bush. Reagan took office at a time when the country also faced big economic challenges, but they were more related to high inflation than to a financial crisis. Bush took office at a time when things were going great for the economy, but soured soon after, and the economic problems were exacerbated by 9/11.
There are those that would argue that the President gets too much credit or blame for the state of the economy, sort of like the quarterback. Perhaps that is true, but no one can deny that the employment picture plays a great role in determining the fate of presidencies, and that government policies do affect the economy. If that were not the case, then perhaps political campaigns would have to refrain from mentioning the economy at all. Clearly that is not going to happen. Yes there are other people on the field, but a great performance by the quarterback can save the game, and if the QB is having an off day, it is unlikely that the team will win, regardless of how well the linebackers and offensive guards play. Based on the employment picture at the end of his sophomore season, it does not look like Obama is headed to the hall of fame, but neither is there a convincing case that the coach should bench him.
Of course, employment is not the only economic variable that we should be concerned with. Time permitting, I plan several more of these posts in which I will deal with other variables such as GDP growth, industrial production, inflation and investment returns. If there are any variables that you think would be particularly telling, please mention them in the comments section. Provided the data is available (all data for this analysis comes from the Federal Reserve of St. Louis database) I will try to incorporate your suggestions into future posts.
