- The Washington Times - Saturday, October 21, 2006

When Americans enter the voting booth next month, they will do so at the beginning of the sixth year of the Bush economic expansion, which commenced in November 2001 following an eight-month recession. Over the past 60 years, there have been 10 U.S. economic expansions, which represent periods of sustained economic growth reflected in rising levels of gross domestic product (GDP), income, employment, industrial production and wholesale-retail sales. The current expansion is now the fourth longest since the end of World War II.

According to recent polling data, however, prospective voters have been expressing surly attitudes about how the president and the Republican-controlled Congress have been handling the economy. By a 43-30 margin, for example, respondents to the latest Wall Street Journal/NBC News poll said that the Democratic Party would do a better job “dealing with the economy.” By a 52-44 margin, respondents in the same poll disapproved of the president’s handling of the economy. That latter difference is indistinguishable from the 52-43 disapproval margin expressed in September 2003. What is so interesting about the president’s identical disapproval ratings on the economy (52 percent both today and three years ago) is the fact that the economy has performed so much better over the past three years than it performed during the three years preceding September 2003.

When considering how the economy has performed under President Bush, it is instructive to break it down into two periods. The first would include the recession that occurred during the first year of the first term. The second would include the subsequent economic expansion, which, as indicated above, is now completing its fifth year. (Data are available for the first 18 quarters, through June.) Later, in order to delve deeper into the perplexing question of why the president’s current disapproval rating on the economy hasn’t changed from three years ago, we shall focus on the last three years of the current expansion.

Having begun less than two months after Mr. Bush entered office, the recession cannot in any way be attributed to the actions of his administration. Nor can the Bush administration be held accountable for the deterioration in the stock market that continued after the recession officially ended in November 2001. The stock-market bubble had not sufficiently deflated by the end of 2001. However, the administration can be judged by how it reacted to the recession it inherited. In this regard, it deserves high grades for quickly implementing an expansionary fiscal policy that undoubtedly contributed to the recession’s brief duration and its relative shallowness.

Addressing how the economy has performed since the recession ended and the expansion began in November 2001, the Center on Budget and Policy Priorities (CBPP), a liberal-oriented think tank, has analyzed how several important macroeconomic variables (GDP, consumption, business investment, nonfarm employment, household net worth, wages and salaries and corporate profits) have fared during the current expansion relative to their performance in previous postwar economic recoveries. Whether measured from the March 2001 peak of the previous business cycle or from the November 2001 trough of the latest recession, the current expansion in many respects has not been as vigorous as its nine postwar predecessors, according to the CBPP analysis.

Measured throughout the 18 quarters that have followed the November 2001 trough, the real (i.e., inflation-adjusted) growth rate of GDP in the current recovery has averaged 3.1 percent per year. That compares to an annual GDP growth rate of 4.2 percent that prevailed on average during the 18 quarters that followed the beginning of each of the nine previous postwar recoveries. Worth noting is the fact that several of the nine previous expansions had reverted into another recession during the 18-quarter period following the initial trough; and the deteriorating numbers from the follow-on recessions are included in the postwar averages. (In the following data, average annual real growth rates during the previous nine postwar recoveries appear in parentheses.)

During the Bush expansion, consumption has increased by an annual average of 3.1 percent (compared to 4 percent); business investment has increased by an annual average of 3.2 percent (compared to 5.8 percent); wages and salaries have increased by 2 percent per year (compared to 3.6 percent); household net worth has increased by 3.3 percent per year (compared to 4 percent); and nonfarm employment, including the projected revision that will add 810,000 jobs to the latest total, has increased by 0.9 percent per year (compared to 2.4 percent). Only corporate profits, which have increased by 13.7 percent per year during the Bush expansion, have grown at a faster rate than the average rate (7.5 percent) for previous postwar expansions.

Let’s now look at how some important economic variables have performed during only the last three years. The Dow Jones Industrial Average, which stood at 9,500 in September 2003 (after falling below 8,000 from its January 2000 level of 11,700), recently passed the 12,000 mark for the first time ever. The broader-based S&P; 500-stock index has increased by more than one-third since September 2003. In both cases, very strong growth in profits underlies the rallies. During the three years that ended in June, GDP expanded at an average annual rate of 3.7 percent; and business investment increased by 6.6 percent per year. Since June 2003, nominal total household net worth increased by more than $12.5 trillion, reaching $53.3 trillion in June 2006 and reflecting an average real growth rate of 5.9 percent during the previous three years. Nonfarm employment has increased by more than 6.5 million jobs over the past three years, representing an annual growth rate of more than 1.6 percent.

Meanwhile, declining gasoline prices (the average price per gallon has fallen more than 80 cents since early August) have caused the inflation rate (CPI-W) to decelerate to 1.7 percent during the last 12 months. This decelerating inflation rate has combined with an accelerating growth rate in nominal wages to generate a 2.2 percent increase in average real wages during the last 12 months. That jump represents the biggest 12-month increase since January 2002. Moreover, as the White House Council of Economic Advisers noted, the recent 2.2 percent increase in real wages “was much faster than the 1990s (0.3 percent per year) or even during the second half of the 1990s (1.2 percent per year).”



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