After two and a half years of sluggish growth and persistent employmentlosses, the nation's overall output of goods and services shot up in the thirdquarter of 2003; unemployment, meanwhile, has ticked down to just below 6 percent.
Accordingly, some analysts have declared that the economy is "fixed" and that we have "turned the corner." Moreover, some commentators are now saying that the economy, which had been expected to drive the 2004 political debate, will not be a majorissue, implying that the election is in the bag for the president. And the Bush administration is claiming recent growth affirms that its tax cuts are working.
"And now we are seeing the results of the hard work of the American people and the sound policies of this administration," Vice President Dick Cheney said on Jan.13 at a fund-raiser in Oregon, "The figures for the third quarter show the economy grew at an annual rate of 8.2 percent -- the fastest pace in nearly 20 years. Business investment, manufacturing and housing construction are all on the rise. And our economy has added over a quarter of a million new jobs over the last five months. The Bush tax cuts are working."
Not so fast.
Despite these improvements, working families are still facing sizableeconomic problems that are not likely to be solved over the next year. Theeconomy may be looking brighter on spreadsheets, but the actual economy -- the one most people live in -- is plagued by stagnant paychecks, fear of job loss and few opportunities.
The tax cuts have failed to produce the jobs the administration promised.
Even though production has been growing for more than two years, the UnitedStates has just experienced the sharpest loss of jobs this far (33 months) into a business cycle since the Great Depression, with 2.9 million private-sector jobs lost, a 2.6-percent contraction. For every job vacancy, there are now 2.8 unemployed workers. At this point nearly half of all Americans personally know someone who has lost a job.
We are a long way from a healthy labor market, with strong real-wage improvements and unemployment steadily dropping toward the 4-percent level we enjoyed in 2000. In economic terms, there is a huge gap between, on the one hand, the rising gross domestic product, productivity and capital investment, and stock-market growth that excites business analysts and the business press and, on the other hand, the harsh conditions in the labor market.
Jobs increased by only about 43,000 per month over the last quarter of 2003, with the bulk of the gains coming in October. December's preliminary count put gains at only 1,000 new jobs for the month. This is not nearly enough growth to rev up the job market. To employ the new workers who enter the labor market each month, we need about 150,000 new jobs each month. To reduce unemployment and underemployment to any great extent over 2004 would require an increase of 300,000 jobs each month.
The current job creation rate of 43,000 per month also falls far shortof the 306,000 each month that Bush administration officials told us we couldexpect starting in June 2003 as a result of the president's tax-cut package. Since last June, we've seen jobs increase by 221,000; the administration promised 1,836,000 new jobs. It's a 1.6 million shortfall.
The "over a quarter of a million new jobs over the last five months" that Cheney boasts about pales besides the 200,000 jobs generated each month over the last recovery. Similarly bizarre is the administration's glee at reducing unemployment from 5.9 percent in November to 5.7 percent in December, which occurred only because 309,000 people left the labor force after giving up on looking for work.
Employers have seized on the weak labor market to reduce or suppress thegrowth of wages and benefits. Jobs are rapidly disappearing overseas, includingmany white-collar technical and computer-related jobs not previously at risk.Meanwhile, jobs are being lost to layoffs or attrition as the remaining workforce is pressed to maintain or increase production. This restructuring hasbrought strong profit resurgence, with income growth in this recovery tilted farmore toward profits and away from wages than in any other postwar recovery. Working people's hourly wages have only kept even with inflation over the last two quarters, despite inflation being exceptionally low. Moreover, the new jobs being created pay 21 percent less per week than the jobs being lost.
What can we expect in 2004? Economic forecasters are predicting that the GDPwill grow at about 4 percent and that jobs will expand by some 145,000 each month.Unemployment will likely stay around the current level of 6 percent. AlthoughGDP growth could exceed 4 percent, there is at least as much chance that ourtrade imbalances, record consumer-debt burden and sluggish wage growth willlead to growth that's slower than expected.
What's more, if employers continue their dramatic cost restructuring, jobgrowth will be even less satisfactory than these projections, and we will notsee a decrease in unemployment and a boost in real wages anytime soon. If so,working families will likely continue to feel vulnerable and pessimistic. It's hard to see how such a scenario would not play itself out in the voting booth.
Lawrence Mishel is the president of the Economic Policy Institute.
