- The Washington Times - Monday, November 6, 2006

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For voters, the economy matters. As today’s election neared, some key economic statistics softened.

The payroll job count, the preferred Labor Department employment statistic as measured by surveying employers, rose less than 100,000 in October. The advance estimate of third-quarter economic growth was a lackluster 1.6 percent, down from a modest 2.6 percent second quarter as housing slumped and the trade deficit worsened. Consumer inflation persists above 2 percent, and health care and tuition costs continue to pinch. Household debt is elevated and the national savings rate is negative.

On the plus side, gasoline and other fuel prices have fallen since summer. Real hourly and weekly wages at long last perked up in September, rising more than 2 percent over a year earlier. Employment, as measured by household survey, has been on a rising trend and the unemployment rate has fallen to 4.4 percent, the lowest in more than five years. Interest rates are tolerably low, and consumption and investment remain healthy. Long-term home values have risen, though lifting property taxes.

But aggregate data are just that and don’t tell the whole story.

Public polls tell us most voters are negative about the economy and give the president poor economic marks. If the public’s assessment is not wholly consistent with the evidence, it’s because the statistical aggregates don’t always reveal middle-class realities. Total income or employment measures don’t focus in on the widening divide among income groups or categories of workers. Nor do economic totals capture the qualitative and psychological dimensions of economic life.

Our new age of global competition and rapid technological change, for all its benefits, is taking its toll on many Americans. It’s a double-edged sword that has created wealth and income as well as job insecurity. Economic life for many in the middle has become riskier and less certain. People are more fearful; they feel threatened. In a rapidly changing economy they see themselves as obsolescent. They worry they can’t keep up. They look around and see a growing swell of immigrant labor threatening to take their jobs. Pensions are disappearing. Many less skilled and less educated workers feel frozen out and give up the job search, escaping the jobless count.

Under such circumstances, it does little good to point to selected rosy economic indicators and expect voters automatically to nod and support the party in office, the same party many blame for their insecurity.

Nor do the economic statistics heralded by the administration necessarily mean what they once did. Take today’s 4.4 percent national unemployment rate, the administration’s pride and joy. It looks as if it has gotten out of sync with the employment numbers and is understating the seriousness of job loss.

Employment is a demand measure reflecting employers’ need for workers. It’s a clear-cut concept and a comparatively hard number, whereas unemployment is also influenced by supply behavior, i.e., people’s changing decisions to look or not look for work. The unemployment definition is necessarily more complex and judgmental.

During the current economic expansion the unemployment rate has fallen faster than the employment data would have predicted based on past relationships.

The employment-population rate, a labor utilization measure, is 63.3 percent. In the previous economic expansion, it was at that level in the summer of 1996. Then, the unemployment rate averaged 5.3 percent, nearly a point above the current jobless rate and a gap equal to about 1.4 million people.

The shifting relationship between civilian employment and unemployment cannot be accounted for purely by demographic changes. The shift also occurs among component labor force groups; e.g., today’s 3.3 percent jobless rate of men ages 25 to 54 is a full point lower than the employment-unemployment relationship of the mid-‘90s would have predicted.

This points to labor force disappearance in recent years — joblessness outside the official count — that has biased the unemployment rate downward. This could reflect a growing disparity between available workers’ skills and those demanded by employers. It could also reflect Americans being pushed out of the labor force by an influx of immigrant workers or by foreign outsourcing. It is uncertain how much of the disappearance is voluntary versus involuntary or cyclical versus structural.

Today’s unemployment rate is being hailed as evidence of an economy at or near full capacity, though a closer look suggests more jobless have become invisible to the official data and that the economy is still some distance from full employment. As for the midterm election, a number of key pocketbook statistics do not seem to favor Republicans, and a majority of voters’ perceptions apparently lean that way.

Alfred Tella is former Georgetown University research professor of economics.

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