Friday's employment report confirms that the economic expansion is accelerating. The creation of 288,000 payroll jobs in April was almost double the consensus forecast of 150,000. Coming on top of the 337,000 new jobs created in March (revised up from 308,000), the economy has now created 625,000 jobs in just two months. This is a very impressive performance after months of disappointments.
The immediate effect of this good news has to be to improve George W. Bush's electoral chances. Despite the problems in Iraq, history shows that foreign policy seldom influences elections. Pocketbook issues always predominate. And when times are good economically, voters tend to overlook just about everything else and consistently vote to retain the incumbent candidate or party so as to prolong them.
For months, economists have been predicting that solid growth in the gross domestic product forecast a comfortable victory for Bush on Election Day. The economy has now averaged 5 percent real growth over the past year, and experience shows that this is well more than enough to ensure victory for the incumbent party in presidential elections.
With the April 29 announcement that the economy grew 4.2 percent in the first quarter, Yale University economist Ray Fair raised his prediction of President Bush's share of the two-party vote in November from 58.7 percent to 60.4 percent. Either figure would constitute a blowout victory.
Other economists are not quite so optimistic, but nevertheless show Bush with a large and growing lead. In an April report, Global Insight, the giant economic forecasting company, has him winning 55.8 percent of the two-party vote this year.
Economist Robert Dye of Economy.com looked at economic growth in individual states in an April 21 report and did an electoral analysis on a state-by-state basis. Overall, he sees Bush with 54 percent of the vote and carrying every state except California, Connecticut, Delaware, Hawaii, Illinois, Massachusetts, Maryland, New Jersey, New York and Rhode Island. This translates into an Electoral College victory for Bush of 373 votes to 165 for John Kerry.
Of course, all of these forecasters hedged their bets by noting the slow growth in employment up until recently, which could offset the benefit Bush gets from good GDP growth. However, with the latest employment report, which brought the number of unemployed down by 188,000 and the unemployment rate down from 5.7 percent to 5.6 percent, it is becoming increasingly unlikely that this will be a factor.
Needless to say, things could still change and move back in a negative direction before November. But leading indicators are all pointing toward an acceleration of growth in the economy and jobs in coming months. For example:
-- Initial claims for unemployment insurance have dropped steadily and are now at their lowest level since October 2000. The insured jobless rate has fallen to 2.3 percent, the lowest level since the end of the recession in November 2001.
-- The Institute for Supply Management, an industry group, has seen its manufacturing employment index jump to the highest level in 15 years, signaling growth in manufacturing employment of 50,000 per month. With goods-producing employment having risen by 124,000 in just the last two months, this forecast looks very good.
-- The ISM's index of capacity utilization is up to 85.6 percent -- well above the Federal Reserve's figure of 74.6 percent. If the ISM index is more accurate, which it may be, we should soon see a burst of corporate investment as businesses scramble to add new capacity.
-- The Congressional Budget Office reports that profits are rising so fast that corporate income tax revenues are 45 percent above their level this time last year. It also reports higher payroll tax revenues that are consistent with expanding employment. Overall, the economic picture has brightened so much that CBO now sees $30 billion to $40 billion more in federal revenue than it anticipated.
It goes without saying that all these positive trends can change. But it is hard to see what could throw them off short of another massive terrorist attack. Absent such an unthinkable event, the consensus view of professional economic forecasters is that we should get 5 percent growth for the full year, which should raise employment steadily in coming months.
As growth and employment continue to rise, it will become harder and harder for Kerry to argue plausibly that his policies will do better. Indeed, his claim that he will create 10 million new jobs in his first term has already lost all its punch since forecasters now expect this many jobs even if the economy just stays on automatic pilot.
With loss of the economy as an issue, Kerry and the Democrats may have no choice but to ratchet up their attacks on Bush's Iraq policy as their only hope of victory.