- The Washington Times - Friday, March 5, 2004

The job market slumped back into stagnation last month with the unemployment rate stuck at 5.6 percent and only 21,000 jobs created, a development that spells trouble for President Bush’s re-election effort.

Modest gains in temporary services, health care and government were mostly offset by drops in construction and manufacturing jobs, the Labor Department reported yesterday.

Wage gains for all workers slipped to the lowest since 1987, with the past year’s 1.6 percent growth in average hourly earnings barely outpacing the rate of inflation.

Sen. John Kerry, the presumptive Democratic presidential candidate, leveled the blame for the flagging job market on Mr. Bush. The president sought to jump-start a job recovery with $350 billion in tax cuts last year but the response has been only weak and dwindling job gains.

Americans “can either suffer with more and more job losses that rip the heart out of our economy, or they can give George Bush a new job in November and start putting America back to work,” the Massachusetts Democrat said.

The president did not respond personally to Mr. Kerry’s attack, but several of his top lieutenants sought to cast the numbers in a positive light.

“The unemployment rate of 5.6 percent continues to be below the averages of the 1970s, 1980s and 1990s,” said Labor Secretary Elaine L. Chao, but “as the president has said many times, we’re not going to rest until every American who wants a job can find one.”

A Republican Party campaign consultant conceded that the weak job growth after more than two years of economic recovery and 2.2 million job losses is hurting Mr. Bush.

“Is the Bush campaign suicidal over the jobs-formation news? Well, maybe not exactly suicidal, but I can tell you I’m very unhappy — depressed — with the news, and I normally reflect the views of the campaign,” said the consultant, who did not want to be named.

“This is really bad news” both for the president as well as millions of job-hunters because “it means the president’s program is failing,” said Peter Morici, business professor at the University of Maryland.

While the tax cuts boosted economic growth to a steamy 8.2 percent rate last summer, they have produced fewer than 100,000 jobs a month since September and now are close to fizzling out.

A second round of tax refunds to be mailed out early this year had been expected to generate another uptick in growth and jobs, but neither has materialized.

With budget deficits now soaring toward $500 billion, Mr. Morici said, the administration and Congress — as well as the Federal Reserve — have few levers left to stimulate the ailing economy.

Mr. Kerry and Democratic leaders see public discontent with the job market as their best argument for change and turning the election into a referendum on Mr. Bush’s handling of the economy.

Partly because of dimming job prospects and partly because of the constant drum of Democratic criticism on jobs, polls have shown a big drop in consumer confidence and public optimism in the past six weeks.

The problem for Mr. Kerry, said Mr. Morici, is that the remedies he proposes — such as enacting tax penalties for companies that move jobs offshore — are “Band-Aid” solutions that would be no more effective than Mr. Bush’s in creating jobs.

“The tax cut gave a big increase to spending, but when folks go to Wal-Mart, they buy imported goods so the job growth goes to China” and other countries, he said.

Mr. Morici estimates that the $130 billion trade deficit with China is shaving off about one percentage point of growth in the United States — and that translates into thousands of lost jobs. The trade deficit is being fed by China’s policy of fixing its currency against the dollar at a rate that economists say is as much as 40 percent too low.

The most effective way to curb the drain on growth from China would be to demand that China dramatically revalue its currency, Mr. Morici said.

Mr. Kerry has not indicated what his policy would be on exchange rates with China, while the Bush administration since last year has been prodding China to move toward floating its currency.

Merrill Lynch and a few other Wall Street forecasters are predicting that China, under pressure as the presidential campaign heats up, will raise the value of the yuan by as much as 10 percent this year.

While politicians and some economists blame job losses on the outsourcing of jobs to China, India and other developing countries, most economists — including Federal Reserve Chairman Alan Greenspan — say the proliferation of efficiency-generating technologies is behind the job drought.

Innovations from the Internet and e-mail to broadband and cell phones have enabled companies to produce more goods and services with fewer employees — as well as to ship overseas those software and service jobs that require only the use of a computer and a phone.

The result has been unusually high productivity gains, averaging about 5 percent in the past two years, which have enabled the economy to grow by similar amounts without adding workers.

“The torrid growth of investment spending on productivity-enhancing technologies back in the mid-1990s has yielded great rewards” for businesses, said Richard Yamarone, economist with Argus Research Corp.

Productivity in manufacturing has rocketed by 5.8 percent in the past year, enabling factories to ramp up production even as jobs are eliminated and workers put in fewer hours, he said.

U.S. businesses also have been slow to hire because of escalating costs for regulation and raw materials such as energy and copper, he said.

Companies such as Dupont and Alcoa are warning that the high cost of natural gas and strict pollution-control laws in the United States are forcing many manufacturers to move facilities to China and Eastern Europe, where the costs are much lower, he said.

Ralph Z. Hallow contributed to this report.

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