The San Antonio Express-News Printed An Article By Me On How Well The Economy Is Doing

See Forget the numbers — economy is sluggish. The print version has a different title ("Look to past to gauge the economy")

Re: “President-elect is inheriting a great economy,” Catherine Rampell, Other Views, Dec. 30:

I think Catherine Rampell overestimates how well the economy is doing. Rampell stated, “Stocks have reached all-time highs, with the Dow Jones industrial average on the cusp of 20,000.”

It is true that the Dow grew 13.4 percent over the last year and is in record territory. But it was down about 2 percent in 2015.

The important question is, how well is it doing in the long run? Let’s compare 2016 to 1999, when the Dow also was pushing toward record heights.

The Dow grew about 3.2 percent compounded annually from 1999 to 2016. That beat the average increase in the consumer price index, which grew about 2.1 percent annually, by only about 1 percentage point.

But compare that to the previous 17 years, when the Dow increased about 15 percent per year. The CPI increased about 3.3 percent per year in that period.

So, yes, the Dow is close to all-time highs now, but its recent growth rates are not great compared to inflation. If it had grown just 5 percent per year since 1999 (still sluggish), it would be about 26,350 instead of just 19,942.16.

Rampell also said, “The most recent jobs report shows the unemployment rate down to 4.6 percent. It hasn’t been this low since August 2007, several months before the Great Recession began.”

Everyone knows the unemployment rate can be misleading because it declines if people drop out of the labor force.

The labor force participation rate averaged about 59.7 percent in the first 11 months of last year. It was 63 percent in 2007, when the recession began, was above 62 percent every year back to 1994, and has been below 60 percent every year since 2009.

This comparison might be unfair since so many baby boomers are retiring. But what if we look at 25- to 54-year-olds only, those in their prime working years? The percentage of them employed this year has been 77.9 percent. It was 79.9 percent in 2007 and less than 76 percent every year from 2009 to 2013. It was above 80 percent every year from 1996 to 2001.

Comparing 2016 to 2007 on this measure and assuming, say, 100 million 25- to 54-year-olds, that is 2 million not employed. That’s not great.

The recovery since the recession has been week. Economist Robert Barro said that “on average, during a recovery, an economy recoups about half the GDP lost during the downturn.”

What do the numbers say, according to Barro? “The growth rate of U.S. per capita GDP from 2009 to 2011 should have been around 3 percent per year, rather than the 1.5 percent that materialized.”

What about more recently? Barro says, “The growth rate of GDP per worker from 2010-15 was 0.5 percent per year, compared with 1.5 percent from 1949 to 2009.” Again, recent performance has not been great compared to other periods.

One final concern is for the future. Here, also, things could be better because we used to see a higher rate of growth of small business.

Jeffrey Sparshott of The Wall Street Journal reported in October that “the share of private firms less than a year old has dropped from more than 12 percent during much of the 1980s to only about 8 percent since 2010. In 2014, the most recent year of data, the startup rate was the second-lowest on record, after 2010.”

To say an economy is great, it has to be compared to past performance. Unfortunately, we have been falling a little short.