Monthly employment figures due Friday are likely to bolster President Bush’s standing on key “pocketbook” issues that are crucial to his bid for re-election over Sen. John Kerry.
Forecasters expect the Labor Department to report the economy added about 158,000 jobs last month, which would be the best result in four months. Even if the monthly figure falls short of estimates, an expected annual revision could show the economy added a respectable 2 million jobs over the past year.
Kerry and his supporters have assailed Bush’s economic record primarily because of steep job losses beginning in 2001 that have hit particularly hard in manufacturing-dependent states, including battlegrounds like Ohio, Pennsylvania and Michigan.
But economic data generally have turned in Bush’s favor this year, showing steady if modest growth in employment and other indicators, several business economists said this week at a conference in Philadelphia.
“I think (the economy) should favor the incumbent, in the sense that yes, the economy continues to improve,” said John Silvia, chief economist for Wachovia Securities. “Unemployment is declining and the inflation rate still remains remarkably low.”
Jim Diffley of Global Insight, an economic research firm, said that as recently as this past spring, most states had employment levels that were below year-earlier levels. Now all but four states — Ohio, Michigan, Massachusetts and Connecticut — show job growth compared with last year.
“I’ve always thought the timing was right for the president,” he said. Even though economic growth has been sluggish, especially over the summer, the economy is continuing to grow, and “that’s good for Bush,” he said.
It should come as little surprise that the economy is showing improvement ahead of the election, said Richard Curtin, director of the University of Michigan consumer sentiment survey.
He pointed out that consumer sentiment — and economic output — tend to peak in the two quarters immediately preceding a presidential election. The widely observed pattern often is attributed to the effect of incumbents in Congress and the White House making sure to provide plenty of fiscal stimulus in the run-up to major elections.
But Curtin and others noted a sharp divergence this year between the absolute level of economic indicators, which is generally favorable, and the decline from levels in early 2001, when Bush took office. Curtin noted that the current 5.4 percent unemployment rate is low by historical standards except when compared with the 4 percent rate that prevailed in 2000.
Similarly, consumer sentiment is at relatively high levels, according to the Michigan index, but well below the 2000 peak.
“Consumers have raised their standard,” Curtin told a meeting of the National Association for Business Economics. “They’ve taken the peak level and said, ‘That’s what I want.’”
Kerry and other Democrats hope to capitalize on this dissatisfaction. Their most powerful argument focuses on the fact that Bush is in a position to become the first president since Herbert Hoover to preside over a four-year term in which the economy shed jobs. Current figures show the economy has lost about 1 million jobs since December 2000.
“Kerry can still make the case that you are going to have an administration that will have effectively lost jobs over four years,” Silvia said. “Bush has the right direction; Kerry will argue for the level.”
Kerry and his surrogates also will keep the heat on Bush over his record on the federal budget, which has gone from a $236 billion surplus in fiscal 2000 to a projected record $422 billion this year.
“This administration has done quite a bit of harm,” said Alan Blinder, an adviser to the Kerry campaign and a former Federal Reserve governor.
It’s too bad, he said, because with the baby boom generation set to begin retiring in just six years, there is an urgent need to restructure Social Security and Medicare. But with deep deficits projected for years to come, it will be harder than ever for Congress and the next president to come up with a solution to the shortfalls in the entitlement programs.
“To me there was a historical opportunity that was completely squandered. … And that is a shame.”
The precise relationship between pocketbook issues and presidential elections is impossible to pin down, but that does not stop economists from trying. A well-known model developed by Yale economist Ray Fair, based largely on economic growth and inflation figures, projects that Bush will win 59 percent of the two-party vote.
A similar model unveiled this week by Patrick Anderson of Anderson Economic Group added a variable for unemployment and still concluded that Bush would win, but only by 0.2 to 1 percent.
“(Bush) can say the economy is growing, income is growing, the economy is creating jobs, unemployment is falling — all these things are true,” Anderson said. “And with those conditions, the model says the incumbent should be re-elected.”
Of course it is entirely possible that the economy will not be the decisive factor in the first presidential election of the post 9/11 era.
“I think Iraq trumps all of it,” said Diffley. He called Iraq the most important “swing state” of all.