By Martin Wolk Executive business editor
updated 6/29/2004 7:32:09 PM ET 2004-06-29T23:32:09

President Bush should be feeling pretty good about the economy heading into the final four months of his re-election campaign. After a long jobless recovery, the economy has added nearly 1 million jobs in just three months — the fastest pace of growth in four years. The broadest measure of the economy, gross domestic product, has grown at an above-average clip for four straight quarters.

At the very least, the economy’s recent revival has blunted one of the sharpest weapons in Sen. John Kerry’s arsenal as he tries to unseat President Bush, according to’s panel of economic experts.

“Bush is going to have a lot of ammunition from the economy in the next several months,” predicted Ed Leamer, director of the UCLA Anderson Business Forecast.

Yet recent signs of expansion have not stopped Kerry and his surrogates from continuing to attack President Bush for his handling of the economy, highlighting the return of record budget deficits and the worst record on job creation since before the Great Depression.

As he hammers away, Kerry appears to be tapping into an undercurrent of dissatisfaction only partly related to the economy. In an election where foreign affairs are likely to play a dominant role, concern about the war in Iraq may be coloring the way voters feel about the economy, some of our panelists said.

“To see the news clips of everything from prisoner abuses to the ongoing terrorist strikes in the Middle East … someone would be hard pressed to say these are great times,” said Diane Swonk, chief economist at Bank One.

Consumer confidence surged in June to its highest level in two years, the Conference Board reported Wednesday. But other recent surveys have found mixed results. A Gallup survey taken in early June found only 35 percent rated economic conditions as good or excellent, down from 43 percent in January.

“There are still pockets of pain,” explained Sung Won Sohn, chief economist at Wells Fargo. "If you go to the Midwest, many manufacturing jobs have been lost to outsourcing, technology, immigration and many of those people will not get their jobs back. They have lost their jobs for good. So clearly they are pretty pessimistic.”

In addition, Sohn said lower-income families in particular have been hit hard by rising prices for fuel and health care, while the benefits of economic expansion have flowed mainly to middle and upper-income families.

“People at the low end of the income spectrum, especially living on wages, have not fared as well,” he said.

The bitter election campaign itself is no doubt playing a role in limiting the enthusiasm consumers feel about the economy. The lingering effects of 9/11 and the ongoing role on terror also share the blame for a widespread feeling of anxiety that extends to the economic sphere.

“There is a chronic issue of lack of confidence that I think has come from the long period of jobless recovery and the undercurrent of nervousness around geopolitical problems,” said Ethan Harris, chief U.S. economist at Lehman Bros. “I do think the consumer confidence will pick up as the job picture continues to look strong. … But it’s an uphill struggle to convince people that the world — the economy — is getting better.”


David Lereah, chief economist for the National Association of Realtors, was among several analysts who said rising federal budget deficits are having an impact on consumer expectations for the economy.

“I think households don’t have a high comfort level with the Republicans right now on the economy,” he said. “The economy has been jump-started because of very expansive fiscal policy in terms of defense and military spending and tax cuts. Those are temporary fixes.”

He said “the jury is still out” on whether the economy will help Bush’s re-election effort.

“If you get some real positive economic reports in September and October, Republicans are in good shape,” he said. “If you get some negative reports, the Democrats can play it into their favor.”

“It’s a question of a glass half-full or half-empty,” said Sohn. “I don’t think it’s that clear cut. I suspect that some people may vote for President Bush because of an improving economy and jobs, and others might still vote for Mr. Kerry because they are upset over their income and loss of jobs.”


David Rosenberg, chief North American economist for Merrill Lynch, said consumers appear to be growing nervous about the budget gap. He pointed to a small but steady increase in the national savings rate that he attributed to concern about a future tax bill as Congress faces up to the deficit and shortfalls in programs like Social Security and Medicare.

But he said there is no evidence that the economy’s performance will fade between now and the election.

“If I was an incumbent right now and looking at the shape of the economy I’d be  feeling pretty good about it,” Rosenberg said.

Still, he noted that “there is a whole host of reasons for casting your vote one way or the other,” and other analysts agreed that the economy might not be as critical to the outcome of the election as it usually is.

“Before, when there wasn’t the job growth that we’re seeing, it looked like (the economy) was going to help Kerry and hurt Bush, said Gary Thayer, chief economist for A.G. Edwards. “But now that is more equalized. It doesn’t mean there aren’t some economic issues, like outsourcing or the restructuring a lot of companies have gone through, that couldn’t still be hot issues this election. But it’s not the overriding concern that it looked like it might be earlier this year.”

And that might not be such a bad thing, said Leamer. He said it was “total bull” to say that former presidents Reagan or Clinton were responsible for the economic booms during their presidencies.

“I find it irritating that the politicians claim responsibility, and  it’s also wrong to blame them for the weakness in the job market,” he said. “That’s not really the job of the fiscal authorities. I think the monetary authorities are the ones that ought to be focusing on the short run, and fiscal should be a more long-run issue.  The federal deficit is a huge problem from a long-run standpoint.”

Previously: Fed rate hike plans pose risk to economy.

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