WASHINGTON -- We interrupt your usually depressing news to bring you some developments that will give Americans cause to be optimistic about our economy.
I know this runs against the grain of the fear-mongering we have been hearing from Wall Street and the whiners and complainers in Washington, but several things happened last week that suggest this country is definitely moving in the right direction.
The government reports that tax revenues are significantly higher than anticipated, cutting the budget deficit much more deeply than was forecast. Unemployment has fallen to a low 4.6 percent after 34 consecutive months of continued job growth. The economy was growing at a blistering 5.6 percent rate in the first quarter, and the U.S. Treasury reports that total worker compensation (including wages and benefits) grew by 7.4 after inflation during the current expansion.
Not surprisingly, the Gallup Poll also reported last week that President Bush's job approval rating, which has been in the low 30s for months, has risen to 40 percent. That's still way below his peak of previous years, but a sign that he is turning his presidency around in his second term.
Let's take some of these developments one at a time because they fully deserve more attention than they have been getting in the national news media.
The budget deficit: It's big, wasteful and mostly unnecessary, but it's a product of many things, including unanticipated events like Katrina, economic downturns and the huge defense costs in the war on terror. Much of it is also due to excessive discretionary spending and runaway entitlements.
One way to shrink the deficit is to boost economic growth by cutting the tax rates on work, investment and savings -- and that's what is happening in the economy right now, despite predictions to the contrary by naysayers who said the tax cuts would worsen the deficit.
The Office of Management and Budget reported last week that the fiscal 2006 deficit will be 30 percent lower than expected. The new estimate -- $296 billion or 2.3 percent of the nation's gross domestic product -- is on track to fall to $188 billion in 2008 or 1.3 percent of GDP.
The reason: "Overall tax revenues are growing at the fastest pace in 40 years," says Brian Riedl, the Heritage Foundation's budget analyst. In fact, since Bush's tax cuts were fully accelerated in 2003, tax receipts have risen by over 34.6 percent.
These increased revenues are the result of several things going on in the economy since Bush enacted his across-the-board tax rate cuts. More Americans are working and paying taxes, more investors have had capital gains from the sale of assets that have produced much higher cap gains tax revenue (even at the lower 15 percent rate), and more businesses have had higher earnings and thus have paid more in taxes.
Stronger economic growth: We keep hearing that the U.S. economy is slowing down, but too little about how the economy speeded up in first three months of this year.
In a revision of first-quarter growth, the government said the economy was expanding much faster than they had reported -- at 5.6 percent pace, instead of the previous 5.3 percent estimate.
In fact, the economy has been growing over 18 consecutive quarters, averaging 4 percent per year in inflation-adjusted terms. That's far better than the post-World War II yearly average of 3.4 percent.
A brighter jobs picture: The reason you don't hear Democratic leaders talking as much about jobs anymore is because more people are working than ever before. The Labor Department says 5.4 million new jobs have been created since August 2003, producing an unemployment rate (4.6 percent) that is lower than the average rates of the previous four decades.
Critics attacked last month's 121,000 new jobs as anemic, a figure that comes from business payroll surveys. But they ignored the government's separate "household survey" which showed that 387,000 new jobs were created last month. -- following a 288,000 increase in May.
The Wall Street Journal quotes economist Michael Darda of MKM Partners who says the average of the two surveys produces a gain of close to 250,000 in June "which is much closer to the reality of America's very tight labor market."
Thus the biggest challenge in today's Bush economy is finding enough workers, a problem they would love to have in Western Europe where unemployment remains close to double-digit levels.
No one expects the kind of growth we have seen in the first quarter to continue its torrid pace. The Fed's relentless interest rate hikes and the rise in oil prices will slow things down, but I think all this talk of a much cooler economy in the second half of this year has been overdone.
Economic growth rates will be lower but still respectable, barring any catastrophe here or in the global markets. Bear Stearns economist David Malpass says we should "expect solid 3.4 percent to 3.8 percent second half growth."
That's the kind of forecast that should keep the American economy on a growth path for the rest of this year and maybe beyond. Stay tuned.