Photograph by Scott Eells/Bloomberg

A welder welding the frame of a modular housing unit at the Brooklyn Navy Yard in the Brooklyn borough of New York.

The lower-than-expected reading this morning for U.S. economic growth in the first quarter has revealed a few victims even as growth picked up — among them, factories.

“Manufacturing activity remains weak relative to the larger economy,” in part due to federal budget cuts and tax increases, Chad Moutray, chief economist at the National Association of Manufacturers, said in a statement after the GDP release. “We need to get back to a position where the manufacturing sector is once again making significant contributions to output and employment. This means that we need higher GDP growth to get back on track.”

The U.S. economy grew less than forecast in the first quarter as a drop in defense outlays undercut the biggest increase in consumer spending in two years. Business investment also slowed. GDP rose at a 2.5 percent annual rate, lower than forecast, after a 0.4 percent fourth-quarter advance, according to the Commerce Department data.

The GDP figures cap a week of slumping production data, including readings from the Kansas City and Richmond Federal Reserve banks showing contraction in those regions. The Markit Economics preliminary index of U.S. manufacturing fell to 52 in April from a final reading of 54.6 a month earlier, the London-based group said earlier this week.

Disappointing April production figures from the Euro zone, Germany and China are also weighing on the U.S., Scott Anderson, chief economist at Bank of the West in San Francisco, said in a research note.

“The data suggest the U.S. economy is participating in a synchronized global manufacturing slowdown,” Anderson said.

Next week will bring results from the Dallas Federal Reserve, Chicago’s business barometer and the Institute for Supply Management’s manufacturing survey. This will confirm if things are indeed turning for the worse.

Original post is Behind the Growth: Manufacturing Lags by Political Capital.

Photograph by John Moore/Getty Images

An elderly congregation member in Warren, Ohio.

That’s the estimated federal budget deficit for this fiscal year, according to the Congressional Budget Office.

“Recent tax increases and spending cuts will help pare the deficit to its lowest level since 2008,” the nonpartisan agency said in the first comprehensive analysis of the government’s finances since last month’s deal that averted, at least temporarily, the so-called fiscal cliff, as Bloomberg News reported yesterday.

While the deficit shrank as a percentage of gross domestic product for the third straight year in 2012, deficits are projected to increase in the coming decade as an aging population consumes more health care services.

If tax and spending policies don’t change, “federal debt held by the public will reach 76 percent of GDP by the end of this fiscal year, the largest percentage since 1950,” the CBO report said.

Original post is Bloomberg by the Numbers: $845 Billion by Political Capital.

Photograph by Andrew Harrer/Bloomberg

Contractors lay down flooring at a construction site in Lorton, Virginia.

Timing is everything.

Before Election Day, it was reported that the nation’s unemployment fell below 8 percent for the first time in nearly four years.

After Inauguration Day, it’s reported that  the economy contracted, with the nation’s gross domestic product dropping at an annual rate of 0.1 percent in the fourth quarter of 2012, its worst performance since the second quarter of 2009, when the world’s largest economy was still in recession. And a remarkable swing from the third-quarter growth of 3.1 percent.

President Barack Obama rode to re-election in November with a sizable Electoral College majority in an election that was said to be inextricably linked to the health of economy. It turns out the economy was in a stall during that fourth quarter of 2012.

Behind these numbers, there were gains. Consumer spending grew during the quarter. Home sales are rebounding.

“Consumer confidence has been rising, and consumer spending has been rising, but there’s more work to do,” White House press secretary Jay Carney said in his press briefing today, “and our economy is facing a major headwind.”

“I don’t think any time you see a reduction in economic growth that it’s good news, but I think we need to understand what lies underneath it, the sharp drop in particular in defense spending, which is consistent with what we know has been going on in preparation for the possibility of sequester” of Defense Department and other discretionary spending,’ Carney said. “That was the case towards the end of the year when sequester was supposed to kick in on Jan. 1.”

“The broader point, I think, is that — and I think there’s been some reporting to reflect this — that there are — there remain even within this report indications whether it’s housing or consumer spending or business investment that we continue to be poised for positive economic growth and job creation,” he said. “And we need to make sure that in Washington we are not taking actions that undercut that progress that we have been making and can continue to make and will continue to make.”

Democratic activist Brad Woodhouse noted that one economist put the bad news-good news mix this way:

Paul Ashworth at Capital Economics called it “The best-looking contraction in U.S. GDP you’ll ever see.” wapo.st/VnIaCt

— Brad Woodhouse (@woodhouseb) January 30, 2013

The re-elected president’s popularity is up again, at its highest level since his first year in office.

Timing still is everything.

And this president’s party has a lot of time — four more years — to deliver a GDP that looks good on Election Day 2016.

Original post is Obama’s Economy: Timing Everything by Political Capital.

Photograph by Munir uz Zaman/AFP via Getty Images

U.S. Army soldiers attached to 2nd platoon, C troop, 1st Squadron (Airborne), 91st U.S Cavalry Regiment, 173rd Airborne Brigade Combat Team operating under NATO sponsored International Security Assistance Force (ISAF) looks through his rifle as a Medevac helicopter takes off during a patrol near Baraki Barak base in Logar Province on Oct. 13, 2012. T

Written with Richard Rubin

Just as the U.S. gross domestic product is taking a hit from lower defense budgets, federal spending cuts viewed as unthinkable a few months ago — $1.2 trillion falling heavily on the Pentagon — are seen as likely to happen starting March 1.

What’s known as budget sequestration, designed to be so draconian that it would push Democrats and Republicans to compromise on taxes and spending, has hardened the parties’ positions. If the cuts occur, they would require $600 billion in across-the-board military spending reductions over a decade that Defense Secretary Leon Panetta called “devastating.”

House Republican leaders, weakened by Obama’s re-election and Democratic gains in the House and Senate, are resigned to accepting the cuts rather than risking a deal with Obama that would mean higher taxes. Democrats see little political benefit in accepting Republican offers to forestall the reductions in exchange for cuts to entitlement programs such as Medicare.

“I want to make sure we save that money,” said Senator Lamar Alexander, a Tennessee Republican. “I’m not going to vote to change it unless we replace it.”

Alan Krueger, chairman of Obama’s Council of Economic Advisers, said the decline in GDP underscores the need for legislation that does away with the automatic spending cuts “to avoid self-inflicted wounds to the economy.”

Congress must “move toward a sustainable federal budget in a responsible way that balances revenue and spending, and replaces the sequester, while making critical investments in the economy that promote growth and job creation and protect our most vulnerable citizens,” Krueger said in an e-mailed statement.

Today’s economic report may not change the underlying political standoff that has prevented Congress from avoiding sequestration.

See the full report on defense cuts and the GDP at Bloomberg.com.

Original post is Defense Cuts: Unavoidable, Despite GDP Contraction Pinned on Defense? by Political Capital.

Photograph by Roger Wollenberg/Getty Images

Speaker of the House John Boehner, Senate Majority Leader Harry Reid, House Minority Leader Nancy Pelosi, and Senate Minority Leader Mitch McConnell emerge from the White House on Nov. 16, 2012.

One might think, given all the debate over tax increases and spending cuts and averting a “fiscal cliff” at year’s end, that the White House’s pursuit of a $4-trillion, 10-year solution suggests the government’s habit of deficit spending could be cured.

One might be wrong.

“It will take almost $6 trillion in deficit reduction during the next decade to make a minimum down payment that puts the nation on a sounder fiscal footing.”

This is the conclusion of a Bloomberg Government study that examines the ratio of federal debt to the nation’s gross domestic product.

That ratio stands at about 73 percent today.

The “most likely” package to come out of the negotiations over averting the fiscal cliff of automatic tax increases and spending cuts scheduled at year’s end — that $4 trillion agreement — would allow the ratio of debt to GDP to grow to 80.2 percent, the BGov study shows. The study, written by BGov Director of Research Robert Litan and three other analysts, shows that it would require a $5.9-trillion, 10-year deficit reduction plan to hold the debt-to-GDP ratio at today’s level.

And holding course is not the most prudent course.

“`A 60 percent debt-to-GDP ratio is considered the financially sound level for countries to maintain,” Litan and company write. That would require a $9-trillion plan, more than double what’s likely to come out of the cliff talks.

Original post is Fiscal Cliff Deal No Deficit Solution by Political Capital.

Photograph by Sam Hodgson/Bloomberg

The Otay Mesa Port of Entry in San Diego, California.

The nation’s gross domestic product grew by 2 percent in the last quarter.

The Obama White House hailed this as “further evidence that the economy is moving in the right direction” — Council  of Economic Advisers Chairman Alan Krueger’s words in a blog-posting.

Republican challenger Mitt Romney called it disappointing — Obama inherited an economic problem, Romney said campaigning in Ohio today, but  “what he did with what he inherited made the problem worse.”

Bloomberg data show that good growth generally favors the incumbent in a re-election campaign, or the candidate of the incumbent’s party:

Obama’s numbers: GDP grew by 1.3 percent in the second quarter of 2012, and 2 percent in the third quarter.

The recent record of GDP and elections:

– GDP grew 1.3 percent in Republican George W. Bush’s second quarter of 2008, and fell by 3.7 percent in his third quarter. Obama won the White House in a contest with Republican John McCain.

– GDP grew by 2.6 percent in Bush’s second quarter of 2004, and 3 percent in his third quarter. Bush beat Democrat John Kerry.

– GDP grew by 8 percent in Democrat Bill Clinton’s second quarter of  2000, and by 0.3 percent in his third quarter. Vice President Al Gore lost to Bush.

– GDP grew by 7.1 percent in Clinton’s second quarter of 1996, and 3.5 percent in his third quarter. Clinton beat Bob Dole.

–  GDP grew by 4.3 percent in Republican George H.W. Bush’s second quarter of 1992, and by 4.2 percent in his third quarter. He lost to Clinton.

– GDP grew by 5.2 percent in Republican Ronald Reagan’s second quarter of 1988, and by 2.1 percent in his third quarter. His vice president, the first Bush, beat Democrat Michael Dukakis.

Two percent was good enough for Reagan’s party in 1988.

Nov. 6 will tell whether it’s good enough for Obama’s in 2012.

with thanks to Bloomberg’s Chris Middleton for the data.

Original post is GDP and Presidential Elections: 2 Pct Worked for Reagan’s Party by Political Capital.

Photograph by Victor J. Blue/Bloomberg

Workers build a wing tip for a C-5 cargo plane at the CPI Aerostructures Inc. manufacturing facility in Edgewood, New York.

Updated at 10:45 am EDT

Gross domestic product up.

Unemployment down.

Housing starts up.

Consumer confidence up.

With one more federal report on employment to come the Friday before Election Day, Nov. 6.

All told, a series of indicators on the eve of the 2012 presidential election, a contest virtually tied in national polling and hotly contested in the handful of swing states that will determine the outcome, is favoring the president.

Republican challenger Mitt Romney will campaign in the most pivotal of all states today — Ohio — with an economic message. Romney’s response to the most recent trends has been that things — including unemployment dipping to 7.8 percent at last report, the lowest since Obama took office following the worst recession since the Great Depression — would have been a lot better without President Barack Obama’s insistence on the policies he pursued, such as passage of the health care act which Romney calls a jobs-killer.

Alan Krueger,  chairman of the Council of Economic Advisers, issued this statement from the White House:

“Today’s report shows that the economy posted its thirteenth straight quarter of positive growth, as real GDP (the total amount of goods and services produced in the country) grew at a 2.0 percent annual rate in the third quarter of this year, according to the “advance” estimate released by the Bureau of Economic Analysis.  Over the last thirteen quarters, the economy has expanded by 7.2 percent overall, and the private components of GDP have grown by 10.1 percent. While we have more work to do, together with other economic indicators, this report provides further evidence that the economy is moving in the right direction.

The economy expanded more than forecast in the third quarter, paced by a pickup in consumer spending, a rebound in government outlays and gains in residential construction, as Bloomberg’s Shobhana Chandra reports today.

Gross domestic product, the value of all goods and services produced in the U.S., rose at a 2 percent annual rate after climbing 1.3 percent in the prior quarter, Commerce Department figures show.

And a housing rebound is helping mend Americans’ finances and confidence, indicating the pickup in demand for expensive items such as automobiles can be sustained, Chandra reports, adding: The data is likely to play a role in the upcoming election, allowing Obama to say the economy is heading in the right direction, while challenger Romney argues the growth is not fast enough.

“The household side is doing better, that comes through pretty clearly,” says Dean Maki, chief U.S. economist in New York for Barclays Plc, who correctly forecast the rate of growth. “Housing, which was in a deep hole, is also expanding. The fact that both of these are improving is an encouraging sign.”

Original post is Economic Indicators at Election Eve — White House: `Right Direction’ by Political Capital.

Photograph by David Goldman/AP Photo

Shoppers browse a selection of ovens on display at Lowe's store in Atlanta.

“The economy is not just down-shifting,” says Mitt Romney’s adviser, Eric Fehrnstrom. “It is slipping into reverse.”

Both President Barack Obama — campaigning in Florida and Virginia today — and Republican Romney — campaigning in Colorado — are courting voters in swing states with appeals on their visions for the economy.

Slipping into reverse is serious stuff.

Reverse suggests a turnaround in gross domestic product — that dirty R word that involves two quarters sliding.

The U.S. economy grew at 1 .5 percent annual rate from April through June, following growth at a 2 percent rate during the first quarter of the year. While that’s a relative slowdown, it’s not quite reverse.

Notably, one economic model suggests that Obama can withstand this sort of growth, politically.

“It puts Obama just barely above the break-even point,” said Alan Abramowitz, a political science professor at Emory University in Atlanta and developer of a forecasting model based on second-quarter GDP and polling data. “Mainly it tells me we’re heading to a very close election and Obama is a slight favorite.”

With 1.5 percent growth in the second quarter, Abramowitz’s model projects that Obama will receive 50.5 percent of the popular vote in November and has a two-thirds probability of winning. The model doesn’t project the Electoral College outcome, and it is possible for candidate to win the popular vote without an electoral-vote victory, as occurred in the 2000 contest between Al Gore and George W. Bush.

Fehrnstrom, who issued his campaign’s theme this morning in a conference call with reporters as Romney prepared to campaign in Colorado, probably has his own models.

He’s the one who brought an Etch A Sketch to the campaign.

John McCormick, covering the Romney campaign in Colorado today, contributed. 

Original post is Economy in `Reverse’: Romney Aide by Political Capital.