WASHINGTON – The Demo-crats' chances of beating President Bush in 2004 declined sharply last week with the release of one closely-watched economic number.
The Commerce Department's report that the economy was expanding at a 3.1 percent annual rate in the second quarter must have sent a pall of gloom over the Democratic National Committee headquarters here, not to mention the campaign offices of the Democratic presidential contenders.
Barring some catastrophic setback in the war on terrorism, next year's presidential election will hinge on the state of the economy. Who says so? Why, all of the Democratic candidates. That single issue is at the core of their campaign agendas, such as they are.
But last week's strong, upward revision in the nation's gross domestic product – which measures all the goods and services America produces and sells – dealt a sharp blow to the Democrats' chief domestic issue.
It's virtually impossible to overstate both the economic and political importance of the elevated GDP growth rate. The rate announced in early August was 2.4 percent, much higher than the anemic 1.4 percent rate of the previous six months.
There was cheering in the White House when the revised estimate came out Thursday morning, showing much stronger consumer demand and business investment, as well as an upsurge in manufacturing for durable-goods orders.
Part of the growth surge resulted from increases in defense spending in the war on terrorism, but a lot of it also is a consequence of the administration's $350 billion tax-cut package, which is working its way into the economy.
Income tax withholding rates are down in worker paychecks, about $30 billion in child tax-credit refund checks have gone out to 25 million families this summer, and business tax credits are being implemented to buy equipment for future expansion.
While Bush's Democratic opponents have pounded his $1.7 trillion in tax cuts over the past three years, the fact is that it has resulted in higher after-tax incomes for most households.
We won't know the total economic stimulus from this year's stepped-up tax cuts until the third-quarter GDP numbers are out in November. That's when we will see the full impact of the child tax-credit refund checks sent out in July and August.
But the most breathtaking number in the revised second quarter GDP figures was consumer spending, which shot up by 3.8 percent – nearly twice as fast as the 2 percent rate between January and March.
Rising corporate earnings have also been a big story this summer, driving stock values higher and boosting worker pensions and other stock portfolios.
The economy is clearly growing at a very rapid pace and will likely accelerate in the months to come. My predictions: the GDP at nearly 4 percent, the Dow at 10,000, and unemployment in a steep decline by year's end.
Copyright 2003, United Feature Syndicate, Inc.