Thursday, January 31st, 2013 at 11:16am

GDP Drop Reflects Obama Election Impact

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The Gross Domestic Product (GDP) dropped 0.1 percent for the fourth quarter, and it was a total surprise to many Wall Street analysts, but not for business people on the ground.  There is a real softness that has begun to permeate the United States economy since the re-election of President Barack Obama. It is mainly due to the realization by business leaders across the country that the “war against business” will continue.  For most business people, it wasn’t about the cult of personality in the Presidential race; rather, it was about who is going to bring certainty and clarity to a regulatory and tax environment, which is suffocating small business.  With the re-election of President Obama businesses have gone into full hermit mode with business owners operating very defensively.

In our view, had Mitt Romney been elected in November the country’s GDP numbers would have been very positive; more importantly, there would be a wave of business enthusiasm gripping the nation.  This drop in GDP is directly tied to the business negativity associated with the re-election of President Obama.

The 2 percent payroll tax re-implemented as of January 1, 2013 along with the fear from the odious regulations of Obamacare might keep the country’s GDP negative in the first quarter of 2013.  At that point, should we worry that America’s economy could be falling into another recession?  The answer is yes.  President Obama, without the confidence and enthusiasm of small businesses, has no chance of turning this economy around; right now, there is no reason why businesses should grow and expand.

Plus, there is one factor we all must consider.  This negative GDP was achieved despite a Federal Reserve that is printing money at rate that cannot be humanly counted.

How does this affect Lake County?  It is true that Lake County’s economy has improved; however, the recovery is very, very fragile.  The local politicians on the Lake County Board of County Commissioners and the School Board have started talking and planning for impact fees, gas taxes and increases in property taxes.  This is a huge mistake.  Businesses have been battered for the last six years and most of them are not in any financial shape to withstand higher cost from government.

The Lake County Commission is taking steps to implement impact fees in October while the School Board said on Monday, whoa–let’s look at this in 90 days.  Oddly, we must commend the cautious nature the School Board has approached the issue of impact fees compared to the reckless nature by the Lake County Commission.  This bad GDP number from December should give everyone pause.

Another factor many have failed to recognize is there is a systemic shift in business, a revolution if you will.  Online businesses, which pay no sales tax, are severely hurting brick and mortar businesses.  Many believe that because of the proliferation of online businesses many of these brick and mortar businesses will fold.  This reduction will create an abundance of commercial properties, especially in Florida.  Just look at the woeful inventory levels in your local stores and all the businesses that have closed.  Instead of increasing tax burdens and implementing more regulations, government leaders should be creatively trying to figure out how they can keep these brick and mortar businesses in their town.

Here is the bottom line–the negative GDP numbers on Wednesday should serve as a wake-up call for everyone in government, both nationally and locally.  This darn bad economy is far from over.  Don’t forget President Obama’s “war on business” will continue for at least four more years.  Local governments must decide whose side they are on or they will find themselves on the losing end.

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2 Responses to “GDP Drop Reflects Obama Election Impact”

  1. Wednesday’s 0.1% contraction in GDP marks the largest decline the recovering U.S. economy has seen since October 2009. While any contraction in the economy is cause for concern, high employment and housing numbers seem to mitigate the blow caused by this drop. Fourth quarter GDP appears to be a fluke and not a warning of coming recession.

    Third quarter GDP grew by 3.1% and analysts predicted that we would see a 1% increase in Q4, a 0.1% decline was sharp and unexpected. So what caused the U.S. economy to turn negative for the first time since the Great Recession?

    Heidi Moore, U.S. finance and economics editor for The Guardian, assigns blame to 2012’s fiscal cliff crisis.

    “It is completely evident that fears over the fiscal cliff and what is going to be called sequestration cuts is what caused GDP to shrink by such a huge amount,” Moore tells the Daily Ticker.

    Moore points to cuts to defense spending as evidence of the fiscal cliff’s impact on GDP. The Pentagon decreased its expenditures by over 22% in the quarter ending in December. Had military spending remained the same, Q4 GDP would have increased by 1.27%. The decrease in defense spending was largely in preparation of the $500 billion cut to military disbursement that the fiscal cliff proposed.

    “There was no other kind of pressure on defense spending that would have cause it to plummet 22% except for the expectation of the cuts,” says Moore.

    Business pull back in response to fiscal cliff uncertainties was the second main cause of economic decline. According to the Bureau of Economic Analysis, “The downturn in real GDP in the fourth quarter primarily reflected downturns in private inventory investment.” Had private inventory investment remained at quarter three levels, GDP would have grown by 1.17% last quarter.

  2. A huge drop in military expenditures. Without the massive drop in defense spending, GDP would have risen.

    Why did defense spending fall? Easy. The GOP-engineered fiscal cliff and sequestration resulted in far fewer orders and new contracts for defense related goods and services.

    Is a fall in defense spending a bad thing? Well, is a huge cut in government expenditures a bad thing? Republicans say government spending should be cut. In the case of boondoggles, like the F-22 that kills US pilots and the the F-35 that can’t fly during thunderstorms because of defective fuel tanks, I agree. A cut in military waste is good for America.

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