August 13, 2004


Talking Down the Economy (James K. Glassman, August 9, 2004, Scripps Howard News Service)

Pessimism about the economy helps Kerry and his friends, but an objective look at the report shows a very different picture. Yes, the number of people employed in July rose only slightly, by 32,000. But the unemployment rate dropped to 5.5 percent--down from 6.3 percent a year ago and the lowest since October 2001, right after the 9/11 attacks.

The rate today is lower than when Bill Clinton was running for re-election in 1996. It's lower than the average unemployment rate in the 1990s--not to mention the 1980s and 1970s. Plant closings are way down from a year ago, and the threat of outsourcing is a figment of Lou Dobbs's imagination.

I don't want to overwhelm you with numbers, but I am sick and tired of the biased bleating that passes for economic analysis these days. Look at this:

* Friday's report also showed that a survey of jobs taken by sampling households rather than businesses registered a gain of 629,000 in July. Hourly earnings and hours worked were up. The economy has now gained 1.2 million jobs since the start of the year, winning back two-thirds of those lost in the recession Bush inherited from Clinton.

* Second-quarter profits for the 900 companies tracked by Business Week rose an incredible 32 percent. Business investment is soaring, up 14 percent for the year. The Institute for Supply Management's measure of manufacturing activity, which includes orders, inventories and employment, is at lofty levels not seen since the 1980s.

* Over the past 12 months, David Malpass of Bear Stearns points out, the U.S. economy--measured by our GDP--has grown at a rate of 4.8 percent. That's faster than in any 12-month period during the Clinton administration and three times as fast as Germany and France are growing.

My own view is that the U.S. economy is strong, and, rather than weakening, it will get stronger as the year goes on. Our problems right now are oil prices, which experts expect to decline, and stock prices, which react negatively when Kerry's fortunes rise.

I agree with Jason Rotenberg of Bridgewater Associates, one of the nation's best research firms: "There is little reason to expect the U.S. economy to slow down in any significant way. July will probably shape up to be a strong month, and employment growth in the second half of 2004 is likely to remain strong."

Over time the global momentum takes over from the pessimists. You can't stop an $11 trillion economy by talking mean about it.

Posted by Orrin Judd at August 13, 2004 8:26 AM

"There is little reason to expect the U.S. economy to slow down in any significant way. "

Oil prices.
Record trade deficits.
Did I mention debt?

Posted by: Robert Duquette at August 13, 2004 10:08 PM

You did, but it is at record lows.

Posted by: oj at August 13, 2004 10:15 PM

OJ, you really must let everyone know what weeds you are smoking. Here is a snippet from a Bill Gross article at the PIMCO website:

"The debate I helped foster over a balanced vs. imbalanced global economy revolves around the fundamental proposition that bad things can happen in a levered economy. Think of two garages one with two cars and an immaculately swept floor and the other filled with boxes, newspapers, paint cans and numerous oily rags. Which one do you think has the better chance of going up in flames if a match or a faulty electrical wire creates Fahrenheit 451? That is an apt metaphor in economic terms when comparing a healthy non-debt ladened economy to one thriving on the creation of paper and artificially low interest rates. To be realistic, the possibility of matches and faulty wiring is ever-present and in retrospect, historically obvious. Geopolitical events such as the rise of OPEC in the 1970s, the Vietnam War, and 9/11 have always served as inflationary and in some cases recessionary sparks in an economic context. And fiscal and monetary policy mistakes surrounding these and other independent cyclical trends have accentuated the damage. No Fed Chairman, or President intent upon reelection has ever been immune to minor and in some cases grievous errors of judgment. Rates too high or too low for too long for instance; deficits or fiscal surpluses at exactly the wrong time in the business cycle for another. But a geopolitical or policy match can be thrown onto a spotless garage floor with little chance of a major calamity. With debt laden oily rags strewn throughout, however, the probabilities change. The chart depicted below and as shown in previous Investment Outlooks, therefore, is our major sin and largest stumbling block in any attempt to get back to the Garden of economic prosperity and attractive investment returns."

Chart shows total credit market debt as a % of GDP, currently at 299%, an all-time high.

Posted by: Robert Duquette at August 14, 2004 11:28 AM

The Federal deficit is less than 70% of GDP--low by the standards of a great nation at war.

Consumer's have a net household worth of over $40 trillion after subtracting their debt--that's 400% of GDP.

Foreigners are doing our grunt labor and selling us stuff cheap. In exchange we let them hold our unusually small amount of IOUs. Big deal?

Posted by: oj at August 14, 2004 11:52 AM