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Friday’s employment report confirms the economic expansion is accelerating. Creation of 288,000 payroll jobs in April almost doubled the consensus forecast of 150,000.
Coming on top of the 337,000 new jobs created in March (revised up from 308,000), the economy has now created 625,000 jobs in just two months. This is a very impressive performance after months of disappointments.
This good news has to immediately improve George W. Bush’s electoral chances. Despite the problems in Iraq, history shows foreign policy seldom influences elections. Pocketbook issues always predominate. And when times are good economically, voters tend to overlook just about everything else and vote to retain the incumbent candidate or party so as to prolong them.
For months, economists have predicted solid growth in the gross domestic product would forecast a comfortable victory for Mr. Bush on Election Day. The economy has now averaged 5 percent real growth over the past year and experience shows this is well more than enough to ensure victory for the incumbent party in presidential elections.
With the April 29 announcement that the economy grew 4.2 percent in the first quarter, Yale University economist Ray Fair raised his prediction of President Bush’s share of the two-party vote in November from 58.7 percent to 60.4 percent. Either figure would constitute a blowout victory.
Other economists are not quite so optimistic but nevertheless show Mr. Bush with a large and growing lead. In an April report, Global Insight, the giant economic forecasting company, sees him winning 55.8 percent of the two-party vote this year.
Economist Robert Dye of Economy.com, looked at economic growth in individual states in an April 21 report and did a state-by-state electoral analysis. Overall, he sees Mr. Bush with 54 percent of the vote and carrying every state but California, Connecticut, Delaware, Hawaii, Illinois, Massachusetts, Maryland, New Jersey, New York and Rhode Island. This would produce an Electoral College victory for Mr. Bush of 373 votes to 165 for John Kerry.
Of course, all these forecasters hedged their bets by noting employment growth was slow until recently, and that could offset the benefit to Mr. Bush gets of good GDP growth. However, with the latest employment report, which brought the number of unemployed down by 188,000 and the unemployment rate down from 5.7 percent to 5.6 percent, unemployment is increasingly unlikely to be a factor.
Needless to say, things could still change and return to a negative direction before November. But leading indicators all point toward accelerated growth in the economy and jobs in coming months. For example:
Initial claims for unemployment insurance have dropped steadily and are now the lowest level since October 2000. The insured jobless rate has fallen to 2.3 percent, the lowest since the end of the recession in November 2001.
The Institute for Supply Management, an industry group, has seen its manufacturing employment index jump to the highest level in 15 years, signaling growth in manufacturing employment of 50,000 per month. With goods-producing employment having risen 124,000 in just the last two months, this forecast looks very good.
The ISM’s index of capacity utilization is up to 85.6 percent — well above the Federal Reserve’s figure of 74.6 percent. If the ISM index is more accurate, which it may be, we should soon see a burst of corporate investment as businesses scramble to add new capacity.
The Congressional Budget Office reports profits rising so fast corporate income tax revenues are 45 percent above this time last year. It also reports higher payroll tax revenues consistent with expanding employment. Overall, the economic picture has brightened so much CBO now sees $30 billion to $40 billion more in federal revenue than earlier anticipated.
It goes without saying that all these positive trends can change. But it is hard to see what could throw them off short of another massive terrorist attack. Absent such a diastrous event, the consensus of professional economic forecasters is that we should get 5 percent growth for the full year. That should raise employment steadily in coming months.
As growth and employment continue rising, it will become harder and harder for Mr. Kerry to argue plausibly his policies will do better. Indeed, the claim he will create 10 million new jobs in his first term has already lost all its punch since forecasters now expect this many jobs even if the economy just stays on automatic pilot.
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