Jobs, pay, and the score so far
The economy is growing and jobs are being created. But wages don't keep up.
There may or may not be "two Americas," but when it comes to the economy, there are certainly two widely differing views.
Republicans point to solidly growing national output - better than 3 percent for more than a year - thanks in part to President Bush's tax cuts. The job market is starting to sprout "help wanted" signs from Long Beach to Fort Lauderdale. The "misery index," the sum of the inflation and unemployment rates, is lower than when presidents sought reelection in 1996, 1992, or 1984.
Democrats say the economy may be growing, but it's creating neither enough jobs to match the growth of the labor force nor enough well-paying ones to keep pace with inflation. And Bush's tax cuts have helped mainly the rich.
"It's perfect for an election year. It's a half-empty, half-full picture," says Avery Shenfeld, an economist with CIBC World Markets, a bank subsidiary that tracks the United States economy from Toronto.
Amid this unusually well-matched battle over economics, one of the campaign's pivotal issues, here's an attempt at a reality check:
• Overall economic growth is healthy, despite a possibly worrisome uptick in inflation. Score one, economists say, on the upbeat side.
• Job growth, too, appears to be recovering to health, but so far not strongly enough to cut the jobless rate much. A mixed picture.
• On incomes, the picture is more negative. Adjusted for inflation, wages have fallen back to where they were in November 2001. While Bush's tax cuts put rebate checks in millions of pockets, most of the benefit went to the rich.
• Debate rages on the quality of jobs - whether America is replacing well-paying jobs with "burger flippers." One new assessment notes that the majority of new jobs have long been created in higher-paying categories rather than lower-paying ones. But it adds that the economy now seems weaker than usual on job quality.
Here's more detail on jobs, incomes, and the "burger flipper" debate.
Since the economy started to add new jobs last August, employers have added 1.5 million through June. The unemployment rate has remained essentially flat at 5.6 percent since December, with the jobless numbering 8.2 million. The new jobs are welcome, but just as the recession was a mild one, this is "the weakest hiring cycle in modern history," states Stephen Roach, economist at Morgan Stanley in New York.
It is now 32 months since the 2001 recession ended, yet Bush could become first president since Herbert Hoover to see fewer nonfarm jobs at the end of four years than at the start of his term.
As of June, the number of jobs is short 1.1 million. "Bush could well make it," says Mr. Shenfeld. "But just."
The last monthly employment numbers available before the November election will be for September. So simple math indicates monthly job growth would have to exceed a husky 366,000 for three months to wipe out the job deficit. But is that the right way to look at the issue?
Jared Bernstein, an economist at the liberal-leaning Economic Policy Institute in Washington, notes the economy must create jobs not just for the unemployed but also for new entrants into the labor market.
After adjustment for inflation, average hourly wages in May of $15.64 fell back to exactly the same level as November 2001, the month when the last recession ended. Over the 12 months to May, nominal wage growth slowed to 2.2 percent, less than the inflation rate, a number swelled by high energy and medical price increases.
In June, real average weekly earnings were down 1.4 percent from June 2003.
So the approximately 80 percent of Americans relying primarily on wages and salaries are seeing their real welfare decline as slack in the job market lets business restrain pay boosts, argues Mr. Bernstein.
Tim Kane, an economist at the conservative Heritage Foundation, says the "real story" is that after-inflation "disposable income," that is, income after taxes are taken out, has risen 7.5 percent since January 2001. On a per capita basis, real disposable income is up 5.2 percent, or $1,819 per family. Those numbers reflect Bush tax cuts that were broad-based, but because key cuts related to income from investments, that extra income was reaped mostly by higher-income individuals.
In the first quarter of this year, says Shenfeld, wages and salaries had the smallest share of total national income than at any time since World War II. By contrast, business profits were booming, up 62 percent since Bush took office..
After MoveOn.org, a group dedicated to ousting Bush, ran a television ad showing a dejected middle-aged worker preparing to flip burgers at his new job, the political debate has centered on the quality of new jobs as much as their quantity.
The charge that low-quality service jobs - often dubbed McJobs - are proliferating, is "inaccurate," holds Mr. Kane. "American jobs are better today and getting better every year." He explains that "the modern workplace is empowering individuals to work for themselves, enjoy flexible hours, and pursue dreams rather than survival."
The Joint Economic Committee, Republican-led, holds that "occupations that are relatively well-paid account for most of the net increase in employment between June 2003 and June 2004." Some 71.4 percent of the net increase was in management, professional, and related occupations; construction and extraction; and installation, maintenance, and repair.
Bernstein counters that the JEC analysis "means little" because the nation has been occupationally upgrading for decades, moving from blue to white-collar work. Looking at industry and occupation, the groups growing faster than average pay about 7 percent less than those growing slower than average, he says.
The debate remains hot. A voter advocacy group, Factcheck.org, found "good evidence that job quality has increased over the past year or more." Then the Economic Policy Institute Tuesday charged that the Factcheck study was "flawed" in its use of Bureau of Labor Statistics data. The EPI said the job quality trend is not as good as usual, despite the long-term trend that more new jobs are coming in higher-paying categories than lower-paying ones.
Federal Reserve Chairman Alan Greenspan dipped a toe into these troubled waters last week, testifying on Capitol Hill that "we've not been able to find a significantly meaningful change in the quality of the jobs being produced" relative to those lost.
Corporate salary budgets this year are up 3.5 percent on average, the second time in 11 years (the first was in 2003) that the rise fell much below 4 percent, finds a survey by the Conference Board in New York.
Behind all the Bush-Kerry debate over economics is an even broader question: How much influence does a president really have on the economy? Shenfeld, for instance, suspects the economic troubles in the US started before Bush took office, but says the Bush tax cuts could have been better designed to boost the economy and create jobs faster.