Q. George W. Bush’s web site insists that the economy is “strong and getting stronger,” that during his term unemployment has fallen, labor productivity has risen faster than it has in 50 years and, since August 2003, the economy has created 1.5 million jobs. John Kerry’s web site, on the other hand, asserts that 1.8 million private sector jobs have been lost since 2001, the typical family’s income has fallen by $1,462 and the economic forecast is bleak. Who’s right?

Answer:

Both candidates are using accurate figures. But as one would suspect, the data are culled to support their arguments. To understand the economic situation we need to look at a variety of data.

We start with the obvious. During much of Bush’s first year in office, the U.S. economy was in recession. According to the National Bureau of Economic Research (NBER) the recession lasted from March to November of 2001. Recession is defined as a period in which the gross domestic product (GDP) declines.

During the last 3 years, the U.S. economy has experienced an economic recovery, with GDP growth averaging over 3 percent per year. The recovery is weak, at least in comparison to the four other recessions that have occurred since November 1970. Indeed, in terms of jobs, it has never taken this long for our economy to regain the jobs lost during a recession since the U.S. began tracking such numbers in 1939.[1]

Deciphering employment figures can be difficult. The Bureau of Labor Statistics’ Current Employment Survey (commonly called the payroll survey) finds a loss of about 600,000 under Bush. The Current Population Survey (commonly called the household survey), on the other hand, shows a gain of 1.8 million jobs.[2] Elsewhere, I’ve explained the discrepancy between the two surveys. (See this Ask Dr. Dave.) Economists believe both are useful. But most see the payroll survey as providing a more accurate picture. Says Federal Reserve Chairman Alan Greenspan, “Everything we’ve looked at suggests that it’s the payroll data…you have to follow.”[3]

Jobs are being created, but at a modest rate. Since the population is growing at about 1.2 percent per year, we need some 137,000 new jobs per month simply to keep up with new work force entrants, let alone make up for past job losses. Over the last three months, job creation has averaged less than 100,000 a month. The September payroll data show 96,000 new jobs.

The unemployment rate when George W. Bush took office was 4.1 percent. At the end of the recession it was about 5.6 percent. In September it was about 5.4 percent. However, unlike in other recoveries where the labor participation rate has risen, in this one it has gone down by 1.3 percent. [4] This translates into about 2 million people who have withdrawn from the labor force, at least in part because of discouraging job prospects. If the lower labor participation rate is taken into account, the unemployment rate rises to 6.7 percent.

Since October 2002, more than one-fifth of the unemployed have been without paid work for at least six months. This is the longest stretch on record in which such a large fraction of the unemployed are “long-termers.”[5]

When we analyze the kinds of jobs being created, the situation looks even bleaker. Of the 96,000 jobs added in September, for example, 37,000 were state and local government jobs. Of the 59,000 private sector jobs created, more than half are temporary jobs, lacking in security or benefits.

The number of manufacturing jobs was 15.7 percent lower in July 2004 than in January 2001, a loss of more than 2.6 million jobs. And the situation continues to worsen. Manufacturing jobs fell by 18,000 in September 2004, the largest drop since December 2003. The U.S. manufacturing sector has been shrinking for many years, but this constitutes an accelerated loss; the decline was only 11 percent from 1995 to 2002.[6]

This is the first economic “recovery” in which total hours worked in the private sector declined, in manufacturing and all other sectors.[7]

According to the chief economist for Morgan Stanley, in the current recovery, low-pay, low-skill jobs account for twice the normal job growth.[8]

Annual average hourly earnings increased by 2.4 percent over last September. But they remain below the most recent annual inflation rate (2.7 percent from August 2003 to August 2004).[9]

As a result of fewer job opportunities, lower-paying jobs and fewer hours worked, median household income has declined for three years in a row.[10] The typical household earned $1,535 less income in 2003 than in 2000.[11]

If half of all workers have lower incomes than in 2000, but the economy has been growing, where are the profits generated by higher productivity going? Corporate profits. Profits are up 87 percent since the recession ended, compared to a 4.4 percent increase in wages and salaries. This is the only post-recession period on record in which corporate profits have increased faster than wages.[12] Corporate profits accounted for 41 percent of the increase in national income in 2002 and 2003, twice as much as in any recovery since World War II.[13]

Liquid assets held by corporations totaled $1.27 trillion at the end of June. According to the Wall Street Journal, current corporate cash holdings equal 10.9 percent of GDP, the highest level since 1959.[14]