- The Washington Times - Wednesday, August 11, 2004

The U.S. economy bulldozed its way back into the presidential election this month with a bunch of reports suggesting the recovery may be losing steam.

My own belief is we have run into what Alan Greenspan calls a soft spot, as consumers pay down their bills and the economy pauses to catch its breath in preparation for the next big growth surge.

After months of increasing jobs numbers, stronger 3 percent to 4 percent GDP growth rates, bullish business earnings, little if any inflation and record productivity levels, we’ve just received the economic equivalent of a cold summer shower.

Until recently, the economy has not played much of role in this election. John Kerry clearly underplayed economic issues in his rushed address to the Democratic National Convention, focusing on national security issues and Iraq. Maybe that’s why his speech was greeted with a huge yawn by undecided voters and he left Boston with virtually no bounce in the polls.

Predictably, after months of underreporting a string of good news in the economy, the national media now heavily plays the falling numbers on jobs, incomes and consumer spending, all of which suggest a cooling-off period.

However, it would be just as premature to judge the overall economy’s performance on the basis of one month’s numbers as it would be to judge a mutual fund’s performance over the same brief period.

Even so, the bad news for President Bush is that job growth stalled last month as businesses added only 32,000 new jobs in July — the smallest monthly increase since the end of last year.

But the much longer-term employment picture remains positive. First, the jobless rate fell to 5 percent last month, the lowest rate since October 2001 — a reflection of the 1.5 million new jobs created over the past year.

Keep in mind the unemployment rate was 6.3 percent a year ago, so we’ve made a lot of progress on jobs. Are we in danger of slipping back? I don’t think so. Corporate earnings are showing a lot of strength, profits are up and retail sales, despite the late summer lull, have gotten stronger.

Another side to the jobs story is less visible but worthy of mention because that’s where there’s a lot of hiring.

The payroll jobs number comes from a survey of 400,000 businesses that captures all the news headlines. Far less attention is paid another government survey of 60,000 households that “has shown a substantial increase in self-employment since the recession,” The Washington Post reported last week.

Thus, in a cost-cutting era of “contracting out” and “outsourcing,” the payroll jobs count is missing hundreds of thousands of self-employed consultants and contractors — a critical employment number that will only grow in the months and years ahead.

In between these economic numbers are glimmers of progress to come.

Consumer spending fell in June, largely due to a severe drop in car and truck sales. But the auto industry boosted buying incentives last month and there are reports sales are bouncing back. That’s why economic analysts are bullish on the last half of this year.

“We expect the economy to register moderate growth in the second half of 2004,” economist Joe Liro of Stone & McCarthy Research Associates told clients last week. His fearless forecast: a “solid outlook for economic growth.”

A big reason for a sunnier outlook is inflation: There isn’t any to speak of, according to the government. Consumer prices inched up 0.2 percent in June and only 2 percent over the previous year. Excluding volatile food and energy prices, the so-called “core measure” of inflation barely budged upward by 0.1 percent in June.

Certainly the darkest financial cloud on the economy’s horizon is the stock market’s troubling slide that has deeply eroded 401(k) plans and other retirement investment accounts. Iraq, terrorist threats, softening jobs numbers, an insecurity hangover from the tech stock collapse at the end of 1990s, and the fear Mr. Kerry and his liberal clique will win back the White House have all contributed to the sell-off.

There’s a strategy debate among Mr. Bush’s senior advisers about how he should deal with all this in the last 2 months of the campaign. Propose new economic growth initiatves? Or run “a morning in America” campaign that calls on the country to “stay the course”?

The answer is do both. The tax cuts are working, jobs are being created (Microsoft announced it will produce 7,000 new jobs), businesses are paying bigger dividends to stockholders. Incomes and consumer spending overall are up.

But Mr. Bush needs to say he will push the economy to new, higher performance with proposals to overhaul the tax code and lower income tax rates further and take tougher budget action on waste, fraud and abuse to shrink the deficit and curb excessive spending.

This is the next big signal the voters and financial markets seek: renewed confidence in the direction we’re headed and a bolder plan to lift the economy into an ever-higher orbit.

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

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