- The Washington Times - Thursday, March 7, 2002

Cheers went up in the White House's West Wing last week when President Bush's advisers heard the latest figures showing that the U.S. economy was not only growing, but much faster than anyone anticipated.

The growth numbers suggest that the economy may not be in the slower "U" shape recovery that many analysts predicted. Instead, it looks like a sharp "V" shape recovery and it is coming at just the right time: at the start of the midterm congressional elections when political control of the House and Senate is up for grabs.

Analysts now think this quarter's growth rate could hit 3 percent or more, after a stronger-than-expected 1.4 percent economic growth rate in the last three months of 2001 and despite the wallop the economy took from the savage terrorist attacks. Some say it could go higher. "First-quarter growth is beginning to look like it will top 4 percent," Salomon Smith Barney economist Robert DiClemente told his clients.

Several months ago, when the doom-and-gloomers were predicting the United States would be in for a long and painful recovery, I reported in this column that the 2001 recession would turn out to be "short and shallow." And that is what has happened. In fact, this is one of the shortest and mildest recessions on record.

The growth signals have been coming in for sometime now. But a stream of bullish figures poured out at the end of last week, stunning Wall Street analysts, energizing the stock market and reminding us again about the inherent strengths in resilient, free market U.S. economy.

Among the key figures:

cThe Institute of Supply Management reported that its manufacturing activity index shot up to 54.7 in February, the first increase in 18 months. The rise reflected a big jump in new factory orders the strongest in seven years the result of depleted inventories and stronger consumer buying.

cMeanwhile, the Commerce Department reported that consumer spending rose by a significant 0.4 percent in January. Consumer spending kept the economy afloat late last year, with new car sales resulting from zero interest financing deals, and that trend shows no sign of slowing down.

When adjusted for inflation, personal consumption spending increased by 0.3 percent in January. February's consumer spending looks just as good if not better. It could rise overall by 1.4 percent this quarter, analysts say.

cPerhaps one of the most politically important economic numbers to come out last week was the closely watched incomes data. Overall personal incomes increased by 2.5 percent in the past year and by 0.4 percent in January. But after taxes, disposable personal incomes jumped by 1.6 percent.

This stemmed in large part from the Bush income tax rate cuts, which began last year and continued in January with an additional 1 point cut in the tax rate as a result of the new, lower 10 percent bracket for the first $6,000 to $12,000 in incomes.

cConstruction spending went up by a robust 1.5 percent in January as new home construction and home sales continue to rise, fueled by lower interest rates. That has had a spillover effect in retail spending for home furnishings, appliances, fixtures and other home-related products.

The economic and political fallout from all this is good news to the beleaguered White House, which has been fighting two wars one against terrorism and the other against the recession.

The unmistakable signs of recovery have sparked a long-awaited increase in stock prices and renewed confidence in the financial markets. Higher stock prices will help attract new capital investment, which will result in new business expansion and jobs. Increases in stock and mutual fund portfolios will begin to restore the "wealth effect" among workers that will encourage additional spending.

Politically, the U.S. economy's comeback robs the Democrats of their biggest campaign issue this fall, which may explain their latest, desperate criticisms of President Bush's handling of the war on terrorism.

The recovery also underscores the validity of the tax-cutting policies that Mr. Bush said would restore economic growth and jobs. The Democrats, on the other hand, end up having egg on their faces.

Senate Majority Leader Tom Daschle delivered a speech in January in which he charged that the tax cuts were making the economy worse. It is a political mantra that the South Dakotan and his Democratic colleagues have been repeating for months.

They said the across-the-board income tax cuts were too big, benefited only the rich and had failed to deliver on Mr. Bush's promises. Mr. Daschle strongly hinted that the tax cuts should be repealed or cut back substantially, but he always denied he was proposing that step.

In the end, it turns out that the Bush tax cuts were perfectly timed, taking effect early last year when the economy was showing troubling signs of decline and tax relief was needed as "an insurance policy" against recession.

But the Democrats' timing could not have been worse as they fought tooth and nail to preserve higher, anti-growth tax rates just as a weakened, investment-starved economy was heading toward a recession. When will they ever learn?


Donald Lambro, chief political correspondent of The Washington Times, is a nationally syndicated columnist.


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