U.S. economy back in election picture
WASHINGTON — The U.S. economy bulldozed its way back into the presidential election this month with reports suggesting that the recovery may be losing steam.
My own belief is that we have run into what Fed Chairman Alan Greenspan calls a soft spot, as consumers pay down their bills and the economy catches its breath in preparation for the next big growth surge.
After months of increasing jobs numbers, stronger gross domestic product (GDP) growth rates, bullish business earnings, little inflation and record productivity levels, we've just received the economic equivalent of a cold summer shower.
Until recently, the economy has not played much of a role in this election. John Kerry clearly underplayed economic issues in his rushed address to the Democratic National Convention, focusing on national security issues and Iraq. Maybe that's why undecided voters greeted his speech with a huge yawn and he left Boston with virtually no bounce in the polls.
Predictably, after months of under-reporting a string of good news in the economy, the national news media now are giving heavy play to the falling numbers on jobs, incomes and consumer spending, all of which suggest a cooling-off period.
However, it would be as premature to judge the overall economy's performance on the basis of one month's numbers as it would be to judge a mutual fund's performance over the same brief period.
Even so, the bad news for President Bush is that job growth stalled last month as businesses added only 32,000 new jobs in July — the smallest monthly increase since the end of last year.
Certainly the darkest financial cloud on the economy's horizon is the stock market's troubling slide that has deeply eroded 401(k) plans and other retirement investment accounts. Iraq, terrorist threats, softening jobs numbers, an insecurity hangover from the tech stock collapse at the end of 1990s, and the fear that Kerry and his liberal clique will win back the White House have all contributed to the sell-off.
There's a strategy debate among Bush's senior advisers about how he should deal with all this in the past two and a half months of the campaign. Propose new economic growth initiatives? Or run "a 'Morning in America'" campaign that calls on the country to "stay the course"?
The answer: Do both. The tax cuts are working, they are creating jobs (for example, Microsoft announced it will be producing 7,000 new jobs) and businesses are paying bigger dividends to stockholders. Incomes and consumer spending overall are up.
But Bush needs to say that he will push the economy to new, higher levels of performance with proposals to overhaul the tax code to lower income tax rates further and tougher budget action on waste, fraud and abuse to shrink the deficit and curb excessive spending.
This is the next big signal that the voters and the financial markets are seeking: renewed confidence in the direction we're headed and a bolder plan to lift the economy into a higher orbit.