August 9, 2004
by Irwin Stelzer
There was a flood of economic data last week--and of political commentary on the data--and John Kerry had it all his way. The economy created surprisingly few jobs--a mere 32,000, 10 percent of the number Bush had been hoping for--in July. To add to the president's discomfort, the already low job-creation figures for May and June were revised downwards by about 50,000. This wounds Bush in key swing states such as Wisconsin and Ohio. And not only there. All over America, even those working will now worry a bit more about their jobs, especially when new data show that experienced workers with long records of service are among those most frequently laid off, and for long periods.
Kerry's slogan, "We can do better," will resonate more loudly. Never mind that if voters put him in the White House, he promises to push through tax increases on the wealthy and on dividends and capital gains, a variety of protectionist measures, and an expensive health care plan. Just how such measures will stimulate economic growth remains a mystery.
The president will find it difficult to continue arguing that, thanks to his economic program, "we have turned the corner" from recession to growth. He has justified the massive deficits resulting from his tax cuts (and his spending spree) as needed to create jobs, which they have been doing--until now. He can, of course, point out that the unemployment rate dropped last month to 5.5 percent from 5.6 percent, that we have had 11 consecutive months of job growth, and that the indices of weekly hours and weekly payrolls increased. But these points will be drowned out by the roar of disappointment over the jobs figures. As will the good news contained in much of the data released last week.
The Institute for Supply Management reported that its index of manufacturing activity rose in July for the fourteenth consecutive month. Eighteen of the 20 industries surveyed reported stepped-up activity. Norbert J. Ore, the chairman of the institute's survey committee, summarized the good news, "The manufacturing sector continues to grow at a rapid rate." New orders are up, and inventories are too low relative to orders, meaning that manufacturers will have to step up output to restock their customers' shelves. Even export orders rose.
The service sector is also growing rapidly. In July, activity in that sector increased for the sixteenth consecutive month, and at a faster rate than in the previous month. New orders and order backlogs also rose in the service sector.
Consumer confidence is high, probably because personal incomes have grown for three consecutive quarters. Consumers returned to the auto showrooms in July, and drove vehicle sales up by more than 12 percent from June levels. Despite high gas prices, sales of light trucks and SUVs led the way.
Wal-Mart, which accounts for about 8 percent of all non-auto retail sales in the United States, reports that net sales for the four-week period ending July 30 increased by 10.9 percent over the same four weeks in 2003. Even Target, which has been struggling, reported an 8.8 percent increase in July sales over last year's levels. These figures bode well for the important back-to-school sales of clothes, computers, and bedding, although retailers remain nervous that high gasoline prices might sop up so much consumer purchasing power that parents will rein their darlings in when it comes to apparel and other optional goodies.
Meanwhile, retail sales at the high end of the market continue strong. The shops of leather goods seller Coach and other posh retailers such as Saks Fifth Avenue (up 15 percent) and Neiman Marcus (up 14 percent) remain crowded, and not merely with curious lookers.
Most important, the housing market continues to advance. Interest rates hover around a relatively low 6 percent, making new houses affordable to the bulk of Americans. And the banks are making credit freely--well, not freely, but cheaply--available to businesses as their profits and credit ratings rise.
But the most widely watched and reported figures--jobs, oil prices, and stock prices--are grist for the Kerry mill. The jobs market is not as strong as Bush would like it to be, oil and gas prices are higher than he would wish, and stock prices are stuck somewhere between level and falling.
Those are the numbers that voters see repeatedly reported on television screens, and, in the case of gas prices, feel in their pockets every time they fill their tanks. BusinessWeek estimates that consumers are spending an average of an extra $10 billion per month for gas and other energy products. Also, the effects of the Bush tax refunds have worn off, and a good day for stock prices is one on which they don't fall. All of this is apt to tame the animal spirits of both consumers and businessmen. That is not a recipe for reelecting an incumbent who took responsibility for the now-slowing recovery when it was steaming ahead.
The White House is hoping that Federal Reserve Board chairman Alan Greenspan will reassess his plans to continue raising interest rates. If he does, share prices might be given a bit of an uplift. The Bush team is also hoping that last week's announcement by the OPEC cartel that it will pump more oil to bring down prices proves to be more truthful than past OPEC statements. After all, the president is supposed to have close ties with the Saudi royal family. If that is true, now is the time for all good Saudis to come to the aid of their president, and tap the two million barrel per day reserve capacity that they have been claiming is available to them.
Finally, Bush's campaign advisers are counting on rising business investment to give the economy a quick and noticeable shot in the arm in the 86 days remaining before Americans go to the polls.
Voters, of course, do not live by bread alone. They worry not only about the economy, but about Iraq and whether they are secure in their homes, offices, and in the nation's shopping malls. Bush is hoping that things will break his way in Iraq, and that continued successes in uncovering al Qaeda plots will prevent a new terrorist attack in America. But that means the president is now at the mercy of events, rather than in charge of his campaign. Not exactly where he hoped to be at this late date in the election cycle.
This article appears in the August 16, 2004 Weekly Standard.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
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