- The Washington Times - Sunday, June 1, 2008

ANALYSIS/OPINION:

Compared to the worrisome “advance” report on first-quarter gross domestic product (GDP) issued in late April, the updated “preliminary” GDP report, which the Commerce Department issued Thursday, included some positive news above and beyond its welcome upward revision of the first quarter’s annual growth rate from 0.6 percent to 0.9 percent.

Most importantly, the “preliminary” report revised the annual change in inflation-adjusted final sales of domestic product (GDP less change in private inventories) from a negative 0.2 percent to a positive 0.7 percent. This occurred in large part because the contribution to GDP growth from the real change in private inventories was downwardly revised from 0.81 percentage point to 0.21 percentage point. Thus, unwanted inventories have not been growing as much as the “advance” report indicated; therefore, firms will not be forced to reduce output as much as they would have in order to bring inventories in line with sales.

Another welcome change involved business investment, which was first reported to have declined by 2.5 percent. That decrease was changed to 0.2 percent in the latest GDP report. Also, even though real exports of goods and services were downwardly revised from an increase of 5.5 percent to an increase of 2.8 percent, the contribution of net exports (exports minus imports) of goods and services to GDP growth increased from an initially reported 0.22 percentage point to an upwardly revised 0.8 percentage point. This upward revision was due to the fact that real imports of goods and services, which were initially reported to have increased by 2.5 percent, actually declined by 2.6 percent. In effect, the trade sector accounted for nearly all of the first quarter’s growth.

Despite the welcome changes, the economy is still in relatively bad shape. Over the past six months, annual growth has averaged 0.75 percent, reflecting a major slowdown from the average annual growth rate of 4.4 percent that prevailed during the previous (April-September) six months.

The economic slowdown is reflected in the national unemployment rate, which has increased from 4.4 percent in March 2007 to 5 percent in April 2008. Private nonfarm employment was lower in April than it was in July 2007. The unemployment rate is relatively high and/or has been rising in states that were closely contested in the 2000 and 2004 presidential elections and will likely be competitive again this year. Keep in mind that George W. Bush won the 2000 and 2004 elections by five and 35 electoral votes, respectively.

The Labor Department recently reported: “Between March and April, seven states reported statistically significant changes in employment, all of which were decreases.” Last month, Florida (27 electoral votes) lost more than 25,000 jobs; North Carolina (15 electoral votes) lost nearly 15,000 jobs; and Georgia (15 electoral votes) lost more than 14,000 jobs. Between April 2007 and April 2008, the unemployment rate increased from 3.8 percent to 4.9 percent in Florida; from 4.7 percent to 5.4 percent in North Carolina; and from 4.3 percent to 5.3 percent in Georgia.

Mr. Bush won Florida, North Carolina and Georgia in 2000 and 2004. Florida will remain a competitive state in 2008. Barack Obama says that a very strong turnout in the black community, combined with a deteriorating economy, could shift some Southern states into the Democratic column. Over the past year, the unemployment rate in Tennessee (11 electoral votes) increased from 4.5 percent to 5.4 percent. In Virginia (13 electoral votes), the jobless rate increased from 2.9 percent to 3.5 percent. Mr. Bush carried both states in both elections.

While the unemployment rate in Ohio (20 electoral votes) remains unchanged from a year ago, its level of 5.6 percent is still more than a half point higher than the national average. In Colorado (nine electoral votes), where Mr. Bush averaged 51.2 percent of the vote in 2000 and 2004, the unemployment rate increased from 3.6 percent to 4.4 percent in the last year. In Nevada (five electoral votes), which Mr. Bush narrowly won both times, the unemployment rate jumped from 4.6 percent to 5.7 percent.

The electoral prospects of Republican John McCain will be diminished by rising unemployment in likely 2008 battleground states that were won by Democrats Al Gore in 2000 and John Kerry in 2004. The unemployment rate in both New Jersey (15 electoral votes) and Pennsylvania (21 electoral votes) increased in the past year from 4.3 percent to 5 percent, while the 6.9 percent unemployment rate in Michigan (17 electoral votes) remains the nation’s highest.

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