At their party’s convention this week, Democrats highlighted positive economic news from the Obama era, including the dramatic plunge in unemployment and persistent growth in output.
But then on Friday, after the gathering had ended, the Commerce Department said the economy grew at only 1.2 percent during April, May and June. Most economists had believed that the gross domestic product, a measure of all goods and services, had been growing at about 2.6 percent this spring.
So when the disappointing number was revealed, many Republicans pounced, suggesting that voters would not want to continue having a Democrat in the White House.
For example, Republican Ari Fleischer, a former spokesman for President George W. Bush, tweeted: “Want to know why Hillary could lose to Trump? It’s because the economy grew just 1.2%.”
And Ralph Benko, senior economic advisor to American Principles Project, a conservative think tank, said in a statement that “the new economic numbers cannot possibly represent good news for Team Clinton.”
But a deeper look at the data reveals a potentially more encouraging interpretation for Democrats.
The GDP data showed the weakness was in inventory accumulation. Businesses turned cautious this spring and whittled down inventories rather than make big commitments to the future.
But at the same time, consumers were springing to life, increasing their spending by an annualized rate of 4.2 percent – a healthy pace.
Economists say shoppers are in good shape for several reasons: cheap gasoline is leaving more cash in wallets; interest rates are low; unemployment is just 4.9 percent and wages are up 2.6 percent from a year ago.
So shopping is up too. The National Retail Federation recently predicted back-to-school spending would hit $75.8 billion — up more than 11 percent from last year’s $68 billion. “We are optimistic that overall economic growth and consumer spending will continue to improve,” NRF President Matthew Shay said in a statement.
So if Americans are buying now, then businesses will have to restock this fall, ahead of the holiday shopping season. That could mean more jobs or longer hours for a lot of people, including factory workers, truck drivers, distribution-center workers, store-shelf stockers and so on.
Nariman Behravesh, chief economist at IHS Global Insight, put it this way in his written assessment: “The big drop in inventories is a bad news/good news story. The bad news is that it cut second quarter growth. The good news is that the change in inventories will likely be positive in the third quarter, which will add to growth.”
And here’s another silver lining for Democrats: slow spending by businesses in the first half of the year could help hold down interest rates for everyone in the second half.
“The weak GDP report makes an increase in the fed funds rate at the Federal Open Market Committee’s next meeting, in mid-September, very unlikely,” PNC economist Gus Fuacher said in a statement.
Keeping rates low will help consumers who need to borrow for cars, homes and other purchases.
In other words, the economy could shape up like this in the fall for average workers: an inventory buildup could generate more jobs and longer work weeks; low interest rates could spur more consumer spending; and falling gas prices could put many Americans in a more positive mood.
Or not. Perhaps the drop in inventories signals a real decline in the economy. Maybe by November, the weak growth turns into a real recession. Anything is possible.
But for now, most economists are still holding to a somewhat brighter interpretation of the GDP data. “While the top-line growth rate for the second quarter of 2016 was disappointing, it does not reflect the underlying growth rate of the U.S. economy, which is in the 2 percent to 2.5-percent range,” Behravesh said.
He continues to forecast 2.5 percent growth for the second half of the year.