The White House eagerly jumped on news this morning that the first estimate of aggregate demand in the 2nd quarter of 2009 came in higher than expected. Let's put the number -- a one percent decline -- in some political context. Clearly, the White House spin is prewritten: the stimulus package and other government interventions have acted like a superconductor, slowing the downward flow of demand. (They might even use the incredible popularity of the cash-for-clunkers program to suggest that Americans are eager to begin to spend, again.) The White House spin isn't angled too far away from the truth. The number of Americans who're relying on government assistance -- unemployment and extended benefits -- is at an all-time high. The direct government transfer part of the stimulus is working as intended, with consumption falling by only a little over 1.2% and with state and local governments recouping about half of their projected deficits. The fact that the final estimate of 1st quarter gross domestic product was revised downward by nearly a full percentage point is one reason why the second quarter projection isn't that high ... given the backstop of government spending and in the absence of a complete collapse of the financial markets, there's only so much the economy can contract. The White House's failure to manage economic expectations is one of the reasons why President Obama's approval ratings are twitchy, and one of the reasons why dissidents have some power in the health care reform debate. Today's number ... just a number ... finally gives the White House a hard datum to use. But I still think the White House would rather go into the August recess with a draft health care bill and not a (happy as it may seem) economic statistic.
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