Trouble for Democrats if 2014 economy grows at wan 1.6 percent?

Economists downgrade their forecast for US growth in 2014 from 2.5 percent to 1.6 percent. A tepid economy usually hurts the president's party in an election year. Can competing data help Democrats dodge the blow?

By , Staff writer

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    A woman fills out an application for a nurse's assistant job, alongside other job seekers filling out applications at the Cleveland Career Fair in Independence, Ohio, in June.
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A new poll finds US economists downgrading their growth forecast to just 1.6 percent this year – a tepid number that could affect how the midterm elections play out.

A stronger economy would favor Democrats in the race for US Senate and House seats, because voters tend to give some credit or blame on the economy to the party controlling the White House. So on its face, the poll sounds like bad news for Democratic hopes of retaining their six-seat edge in the Senate.

But wait.

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Weren’t recent job-creation numbers pretty good? That’s right, and so the real story here is not so much one of a glum economy as it is of a recovery that’s both half full and half empty – with ups and downs that give room for contrasting campaign themes.

The forecasters, surveyed by the National Association for Business Economics, have marked down their full-year growth expectations from 2.5 percent as of June to 1.6 percent in the new survey taken this month.

The markdown stems largely from an event now in the rear-view mirror – a surprisingly dismal decline in output during 2014's first quarter. The economists are projecting better growth in the second half of the year – closer to a 3 percent pace.

But upbeat growth rates have lately been seen more often in forecasts than in actual quarterly numbers reported by the Commerce Department. Only six of the 19 quarters of the current economic expansion have seen growth of 3 percent or higher. In eight of the quarters, growth has been below 2 percent. Officials at the Federal Reserve have repeatedly found themselves too optimistic in their forecasts.

If the year plays out by the new consensus forecast, 2014 would be the slowest-growth year since the recovery began.

This doesn’t mean the economy is tanking. Of the 50 economists polled, 6 in 10 said the odds of a recession this year or next are below 10 percent. (Another one-third of them put the odds at 10 to 25 percent.)

But the economy’s condition is sure to be an important point of contention in this year's election campaign.

As with the run-up to the 2012 election, the data give room for both sides to try to paint a picture of their choosing – Democrats of progress and Republicans of a president’s failure to ignite stronger growth. Those themes are already on display.

On the Republican side, House Speaker John Boehner jabbed Thursday at President Obama’s “tone-deaf celebration of our struggling economy.” He talked about middle-class families struggling with high prices and lean job opportunities.

Obama, emphasizing the full half of the glass, told guests this week at a fundraising dinner in Dallas that in the first half of 2014 “we’ve seen the fastest job growth since 1999,” and that “there’s almost no economic measure by which we are not better off now than we were when I took office.”

The reality may be that the economy is doing much better than you’d think given the 1.6 percent growth projection, but it has lost some vibrancy compared with 1999. That year saw growth rates of 3.4 percent or higher in each quarter (as high as 7.1 percent).

This year, the first-quarter contraction in the economy stemmed largely from cold winter weather and a slowdown in business inventories. But even at that time, employers felt confident enough to be adding workers – a trend that has continued through June.

“The improvement in the employment data looks much more believable than the weakness in first quarter real GDP,” economists at Wells Fargo wrote recently.

Indeed, the good news is that, as the Obama administration is keen to point out, US businesses have hired more than 200,000 people for five straight months – the longest such string since 1999.

But Americans today feel greater anxiety than back then about things like whether children will have a better living standard than their parents.

And, although the unemployment rate has declined to 6.1 percent, part of the story is that people have left the labor force – some because they’re baby boomers hitting retirement age and some because they’ve gotten discouraged and haven’t yet been lured back to the job hunt.

A key question is whether the economy is evolving onto a permanently slower track – due to both slower labor force growth and a cooler pace of gains from worker productivity and business investment. Economists at the investment firm Morgan Stanley, for example, have marked down their estimate of the economy’s inherent growth potential to about 2 percent a year, from 2.5 percent.

Don’t expect either political party to campaign on the notion of “slower times are here to stay."

But the two sides will battle over which one can do a better job of delivering stronger growth – above 1.6 percent.

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