Solid Jobs, Solid GDP

Larry Kudlow
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Posted: Oct 11, 2004 12:00 AM
U.S. job creation continued to move ahead at a steady pace with the announcement Friday that 96,000 non-farm payrolls were added to the economy. Over the past thirteen months 1.9 million new jobs have been created. The unemployment rate stands at a historically low 5.4 percent. One hundred forty million Americans are now working, a new U.S. record.

The brightest spot in the Labor Department?s September report is a 3.2 percent annual rate of increase for third quarter hours worked. This is the strongest quarterly rise in seven years. It probably foreshadows 5 percent real GDP growth for the third quarter, a number that will be released on the last Friday before the Tuesday presidential election.

At lower personal tax-rates more people are working, and they are working longer hours to produce more. This is consistent with supply-side thinking that lower taxes enabling people to keep more of what they earn generate new incentives for greater work effort.

As for wages, average hourly earnings have increased by 3.1 percent annually through September. This number has been steadily rising over the past year from a meager 0.8 percent increase registered in October 2003.

Since George W. Bush was elected President, 585,000 payrolls have been lost. However, 1.69 million more people are working today according to the Labor Department?s other jobs survey -- the household survey. Since the end of the recession in late 2001, 908,000 new payroll jobs have been created, but 3.4 million more people have gone to work since then, according to the household survey.

The Bureau of Labor Statistics argues that on a month to month basis the household survey is more volatile than the establishment payroll survey. However, longer-term trends for the population survey are significant.

In order to put the two surveys on a more comparable basis, the BLS has adopted a methodology that removes self-employed workers from the household survey and also takes out the multiple (and redundant) job tallies in the payroll count. As a rule of thumb, it is useful to split the difference between the two surveys in order to get a better sense of the real new jobs number.

Once you do this, you see that 553,000 jobs have been created during the Bush administration. Since the end of the recession, this method produces 2.2 million newly employed.

The Kerry campaign has defined the economy in terms of the weaker payroll survey numbers. But the most comprehensive measure of economic output is still the gross domestic product, adjusted for inflation. Hopefully, President Bush will emphasize GDP in the remaining weeks of the campaign. During the ten recovery quarters since the end of 2001, real GDP growth has averaged 3.4 percent, in line with its long-run post-WWII annual expansion average of the past 57 years. Over the past four quarters since the supply-side tax cuts legislated in the spring of 2003, real economic growth has jumped to 4.8 percent.

What?s more, personal income is growing at 5 percent over the past year. This measure includes wages, salaries, rents, interest, dividends, and Social Security payments. Like GDP, it is a comprehensive measure of the economy?s progress, especially in terms of individual and family economic power. Adjusting for inflation, real income has increased 2.6 percent over the past year, a hefty gain. Total compensation, which reflects wages, salaries, and non-cash and non-taxable benefits like healthcare, has grown 3.9 percent (adjusted for inflation) over the past year.

These are all solid numbers. They show a healthy and growing economic prosperity. Mr. Bush should use these data to rebut Sen. Kerry?s silly charge that this is somehow a Herbert Hoover economy.

John Kerry, as we know, has a fondness for Europe. But their GDP is growing by less than 2 percent. Their unemployment rate is close to 10 percent.

Bush has nothing to be ashamed of. The resilient, durable, free-market U.S. economy, bolstered by supply-side tax cuts, has in fact delivered the jobs and the goods. This is especially remarkable in view of all the negatives thrown at us, such as a busted technology bubble, a recession, massive corporate scandals, the 9/11 attacks, two wars, and more recently an oil-price shock. With all that, the U.S. economy is growing roughly three-times faster than Europe?s, with an unemployment rate that is only half what it is on the other side of the pond.

Hopefully Bush will hammer all these points home in Wednesday evening?s forthcoming debate.


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