If you believe the usual klatch of armchair pessimists, the U.S. economy’s in a tailspin. If so, then why do the numbers say otherwise?
Last week’s report from the Commerce Department that the economy grew by a nearly 3 percent annualized rate (2.9 percent) in the second quarter — a significant improvement over its earlier 2.5 estimate. That is a very strong growth rate by any criteria, stronger than other industrialized economies and signals the economy is headed for a "soft landing" from its torrid and unsustainable first-quarter pace of 5.6 percent.
The economy’s health will be a critical issue in this year’s elections, but President Bush and the Republicans have not been getting the credit they deserve for keeping the nation’s economy on track through a storm of devastating catastrophes, from Sept. 11 to Hurricane Katrina.
Much of the nation’s perceptions about the economy’s health come from the news media, which all too often reports it in the most negative light possible. But the numbers tell a far different story about an economy in which consumer spending, which represents about two-third of economic growth, remains strong, exports are rising, oil and gas prices have come down a bit, and wages are rising along with business spending.
"Much of the improvement in the second-quarter growth figure came from U.S. exports that were stronger than earlier estimated, plus stronger spending on construction of factories, offices and other commercial structures," Washington Post economic reporter Nell Henderson wrote last week.
The nation’s gross domestic product, which is the measurement of all the goods and services we produce, is the most closely watched number in the economy. That number has been remarkably strong and remains so today.
"Real GDP growth has averaged over 3.7 percent since tax relief was enacted in 2003, in contrast to the tepid 1.1 percent average between the beginning of 2001 and the 2nd quarter of 2003," Congress’s Joint Economic Committee said in an analysis of the nation’s long-term health.
"Real GDP growth has averaged over 3.6 percent in the year ending with the 2nd quarter of 2006," the panel added.
Most Americans do not focus on GDP numbers but on local economic circumstances they face at home and their perceptions of the economy in general. Unfortunately, that perception remains a very negative one.
Americans overwhelming disapprove of the way Bush has handled the economy by a lopsided 57 percent to 39 percent, according a mid-August Gallup Poll. Despite numerous speeches heralding the economy’s health and continued growth, that 39 percent approval score hasn’t budged since Gallup last measured it in July. Surveys measuring consumer confidence have fallen, too.
Yet all of the other numbers by which we assess our economic health paint a much brighter picture than the voters are seeing:
— 5.5 million new jobs created since August 2003, producing a jobless rate of 4.8 percent (which economists consider full employment).
— More people working and faster than expected growth has produced a surge in federal tax revenues that has slashed the federal budget deficit. The fed’s revenues shot up last year by 14.5 percent, the biggest rise in 24 years.
Despite all those gloom and doom forecasts by tax cut critics who said revenues would fall and the deficit would rise, the opposite is happening. The deficit is shrinking faster than was forecast. Tax revenues this year are expected to expand by 11.4 percent.
As good as all of these numbers are, however, they are being trumped by higher gasoline and food prices, and increased health insurance costs that show up directly in weekly employee paycheck deductions.
No doubt many Americans are being stretched economically and that is driving Bush’s economic scores down. News reports of job layoffs among hard-hit sectors like the U.S. automobile industry, while contained to a few auto-producing states, have had a rippling effect throughout the economy, and that has added to an increasingly negative economic perceptions that the GDP numbers are not going to dispel.
We are not going to see significant declines in oil prices anytime soon, (though they dropped to three-month lows last week), unless we embark on a policy of increased offshore exploration and drilling and opening up the vast reserves in the Arctic National Wildlife Refuge as Bush and the Republicans have long been proposing.
But that oil independence policy has been effectively blocked by liberal Democrats whose anti-drilling posture is in part to blame for the higher oil prices we are seeing now in global markets and at the pump.
One important and optimistic sign of the economy’s overall health and staying power is the stock market’s remarkable stability in all of this. Last week the Dow was approaching 11,400 in a late summer rally, a sign of confidence in the economy’s long-term outlook.
There are good reasons for all Americans to be just as confident and bullish about the economy whose fundamentals remain as strong as ever. Bush and the Republicans and the tax cuts they enacted which fueled the recovery had a lot to do with this.
Sign up to the Human Events newsletter