Friday, July 30, 2004

It's Still The Economy Stupid

Despite the unbridled enthusiasm, and occasional outlandish claims, the fact remains that the economy is still lumbering along at a sluggish pace, punctuated by occasional fits and spurts of growth. Listening to the right wing punditizing by such spin-meisters as Mary Matalin, you could be under the impression that this is the strongest economy of the century or even the past decade, but the facts simply to not bear statements like these out. More news was released today by the Commerce Department, and it doesn't fit into the rosy predictions of many Bush supporters:

The U.S. economy grew at an annual rate of just 3 percent in the spring, a dramatic slowdown from the rapid pace of the past year, as consumer spending fell to the weakest rate since the slowdown of 2001, the government reported Friday.

The size of the slowdown caught economists by surprise. Many had been looking for GDP growth to come in around 3.8 percent in the second quarter. Even that would have been a sharp deceleration for an economy that had been growing at a 5.4 percent annual rate through the year ending in March.
The bad growth numbers comes on the heels of disappointing job numbers for June that were also recently released:

Job growth slowed dramatically in June, as employers added just 112,000 workers to payrolls last month, a number that came in well below forecasts by private economists.

The gain was about half of May's revised gain of 235,000 jobs, and was the weakest since February following three straight months of strong job growth, the Labor Department reported.
These numbers give credence to the narrative of the jobless recovery, and compartmentalized growth. The two-tiered recovery, which has favored the wealthiest at the expense of the middle and lower class. The Wall Street Journal, of all sources, recently published an article further examining this dynamic (via Billmon)

"To date, the [recovery's] primary beneficiaries have been upper-income households," concludes Dean Maki, a J.P. Morgan Chase (and former Federal Reserve) economist who has studied the ways that changes in wealth affect spending. In research he sent to clients this month, Mr. Maki said, "Two of the main factors supporting spending over the past year, tax cuts and increases in [stock] wealth, have sharply benefited upper income households relative to others."

Upper-income families, who pay the most in taxes and reaped the largest gains from the tax cuts President Bush championed, drove a surge of consumer spending a year ago that helped to rev up the recovery. Wealthier households also have been big beneficiaries of the stronger stock market, higher corporate profits, bigger dividend payments and the boom in housing.

Lower and middle-income households have benefited from some of these trends, but not nearly as much. For them paychecks and day-to-day living expenses have a much bigger effect. Many have been squeezed, with wages under pressure and with gasoline and food prices higher. The resulting two-tier recovery is showing up in vivid detail in the way Americans are spending their money.
I think that the Bush campaign and their supporters have been too quick to claim that the issue of the economy is off the table. With torpid overall growth and similarly mediocre job performance, and with the increased pressure on the middle and lower classes, the economy could still be a determining factor in 2004. Furthermore, the repetitious mantra of strength and growth in the economic sector could backfire among voters who find themselves facing the uncertain jobs market, and difficulties of rising health care costs, tuition and gasoline prices, and overall fiscal insecurity. Bush's own father turned off many voters who perceived him as out of touch due to his insistence that the economy was strong in 1992, because the reality for many voters was something completely different.

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