September 7, 2003
WHY DON'T WE JUST TELL OURSELVES?
For this Bush, time may be on his side (Charles Stein, Boston Globe, 9/7/03).
In economic terms, 2003 is starting to remind me a lot of 1992. If I'm right -- a big if -- then President Bush stands a good chance of avoiding the same fate his father met. Let me explain. . . .The point of this story is that the economy is improving, but that people don't yet recognize that fact. But if people don't recognize that the economy is improving, why are we buying more stuff? And not just stuff, but cars. A car is a major purchase, and usually involves taking on several years of debt. People don't do that unless they're convinced of their personal job security and that their household economy is not likely to get worse.Flash forward to the administration of the second President Bush. Like his father, the current president picked a rotten time to start his new job. The boom of the 1990s was over, replaced by a bust in the stock market and the economy. The nation shed jobs in 2001, 2002, and again this year.
The economy has been growing, but at an unimpressive pace. Until recently. In the second quarter, growth came in at a solid 3.1 percent clip. This quarter will be significantly better. "This could be a blowout quarter," said Allen Sinai, chief economist at Decision Economics in New York.
The signs of improvement are hard to miss. Wal-Mart is selling more goods; car sales in August were exceptionally strong; orders to American factories are finally picking up; high-tech companies such as Intel are revising their earnings forecasts higher.
Just as important as the strength of the recovery is its timing: The recovery is beginning more than a year before Election Day 2004. "With this much lead time, the recovery should be something people can feel by next year," said Nariman Behravesh, chief economist at Global Insight in Lexington. In other words, we should have a recovery that's recognizable by people other than economists.
So the argument is that the President's reelection is helped because, by next year, we'll all be convinced that the economy is getting better based on statistics driven by the fact that we're all convinced that the economy is getting better.
Of course, the fact that the Globe was forced to say something optimistic about the economy and W's reelection is further confirmation that the improvement in the economy is undeniable.
Posted by David Cohen at September 7, 2003 9:02 AMThere are two "factors" at play here wich are currently suppressing "exuberance".
The one OJ mentions, essentially looking at the economy through the rear-view mirror, will likely play itself out. (That's why they are lagging indicators.) This will keep the Dems and the media from suggestions that we are in the midst of the "worst economy since the Ice Age...".
The second one may merit some monitoring, and it is the whole theme of the jobless recovery. First, is a 6% unemployment rate really so disappointing. Probably not in historical terms, but perhaps so if people expect this rate to get back down to the bubble years 4%. (And yet, why doesn't anybody set NASDAQ 5000 as the benchmark for economic recovery; both levels are equally dubious. Second, if additional job growth is needed to immunize the President from criticism, how will the public get to appreciate that our economy's success can not be solely measured in terms of(any kind of) job creation. We are just too efficient. Economists think that the economy may need to grow at 4%+ to be able to mop up excess capacity/offset technology etc. Of course, in the long term this is what you want to see, as the jobs that begin to be created are durable and money-making. Also, if you have patience, all the slack gets eaten up and a second leg to the recovery gets going.
I think that the worst that the economy will show going into Nov 04 is (very) early signs of smallish job creation (but also little signs of job insecurity), somewhat higher market levels, and stabilizing but high deficts. In this scenario, GWB will win, but not by a landslide. However, if he catches at least one quarter of 200K payroll increases and the unemployment rate below 5.5%, the victory will be much easier.
I'll be interested to see how the reported natural gas shortage plays out this winter. If the shortage (as reported over the past three months) is real and the U.S. has a cold winter (or more precisely, if the U.S. Northeast has a cold winter), the press will be all over the higher heating costs. Higher costs for heating combined with transportation delays due to heavy winter storms could produce at least a temporary drag on the economy for the 1Q of 2004. Then the success of the 2Q numbers that come out during the main part of the election will increase in importance for Bush.
Of course, the economy could grow at 4.5 percent through all quarters and the jobless rate drop to the same number or lower by convention time next year, and the Democrats would still be calling this the "worst economy since Herbert Hoover" because ... well, because it worked in 1992, dagnabit.
Posted by: John at September 7, 2003 10:40 AMMG -- Do we vote our own economic situation, or our perception of everyone else's economic situation?
Posted by: David Cohen at September 7, 2003 5:19 PM