President Bush last week caused a stir when he declined to endorse a projection, made by his own Council of Economic Advisers, that the economy would add 2.6 million jobs this year. But that forecast, derided as wildly optimistic, was one of the more modest predictions the administration has made about the economy over the past three years.
Two years ago, the administration forecast that there would be 3.4 million more jobs in 2003 than there were in 2000. And it predicted a budget deficit for fiscal 2004 of $14 billion. The economy ended up losing 1.7 million jobs over that period, and the budget deficit for this year is on course to be $521 billion.
These are not isolated cases. Over three years, the administration has repeatedly and significantly overstated the government's fiscal health and the number of jobs the economy would create, but economists and politicians disagree about why.
The president, though not addressing the predictions directly, regularly points to four events that altered economic expectations: the recession; the Sept. 11, 2001, attacks; the corporate governance scandals; and war in Iraq. "We've been through a lot," Bush said in an economics speech Thursday. "But we acted, here in Washington. I led."
The opposition has sought to portray the economic forecasts as evidence of Bush's dishonesty, similar to the claims of weapons of mass destruction in Iraq that have not materialized. "Every day, this administration's credibility gap grows wider," Sen. John F. Kerry (D-Mass.), the leading prospect to challenge Bush in November, said Friday. "They didn't tell Americans the truth about Iraq. They didn't tell Americans the truth about the economy. And now they're trying to manufacture the 2.6 million manufacturing jobs they've destroyed."
Economists agree that economic forecasts are often unreliable, but they say there is at least one plausible explanation for the discrepancies of recent years: The Bush administration, like the Clinton administration before it and like most private economists, assumed that tax revenue and jobs would rise or fall with the gross domestic product in the same proportions as they had in previous recoveries.
But, because of structural changes in the economy such as soaring gains in productivity, the historical patterns have not held. Job growth and tax receipts were badly underestimated in the boom of the late 1990s, and overestimated since 2000, even as the economy has begun to improve.
Robert D. Reischauer, a former director of the Congressional Budget Office, said that the administration has been "a little exuberant" in its forecasts but that the problem is more a statistical one. "The patterns that prevailed before don't seem to be holding in this current recovery," Reischauer said.
Figures released by the White House show that its overestimate of job creation in 2003 was the largest forecast error made in at least 15 years, and its 2002 underestimate of the deficit was the largest in at least 21 years. But the statistics show that forecast errors began to increase considerably around 1997, under the Clinton administration. By contrast, the Bush administration's GDP forecasts have been relatively accurate, indicating job growth and tax receipts have shed their historical correlation to GDP growth.
"The old theories on predicting revenue proved themselves wildly wrong in the late 1990s and early 2000s," said White House spokesman Trent Duffy. "Nobody saw this happening -- not Wall Street, not Vegas, not Poor Richard, not Nostradamus."
Democrats agree that in 2001, when Congress passed Bush's first tax cut, there was no concrete evidence that there was an unusual decline in tax receipts. But Thomas S. Kahn, Democratic staff director of the House Budget Committee, faults the administration for continuing to rely on upbeat forecasts to pass new tax cuts even after it became obvious there was a problem.
In June 2001, the Treasury Department announced a sharper-than-expected drop in tax revenue. In January 2002, the Congressional Budget Office observed that tax receipts were lower "for reasons that are not entirely understood," and it warned that part of the phenomenon "will remain." The White House Office of Management and Budget, in July 2002, acknowledged that "the precise causes of this year's income tax drop-off will not be known for some time." Yet the administration continued to push for more tax cuts, as Bush promised that the deficit "will be small and short-term."
On employment, the administration continued to make optimistic forecasts even after it became clear that historical patterns were not holding. A year ago, for example, the Council of Economic Advisers predicted that the tax cut package alone that Bush was promoting would generate 510,000 jobs in 2003 and 891,000 in 2004. Even without the tax cut, the council was predicting that average employment would grow by 1.7 million jobs from 2002 to 2003, and 2.7 million jobs between 2003 and 2004.
"They ought to be held accountable for not taking seriously what happened to the jobs numbers," said Lee Price, research director for the Economic Policy Institute, a liberal think tank. Although Bush's jobs forecasts were plausible in 2002, before the extent of productivity gains were known, he said, the continually optimistic jobs forecasts "start to seem outlandish."
The administration used job-creation predictions to justify its 2001 and 2002 tax cuts, as well. In 2002, the economic advisers argued that failure to enact the stimulus package Bush proposed would cost the economy "about 300,000 jobs." The president's economists said that Bush's 2001 tax cuts would create an additional 800,000 jobs by the end of 2002.
In reality, the United States went from an average of 131.9 million jobs in 2001 to 130.4 million in 2002, and to an estimated 130.1 million in 2003. And it will need an extraordinary change to reach the 132.7 million jobs for 2004 that the economic advisers predicted -- the figure Bush declined to endorse.
The administration's budget forecasts have followed a similar pattern. A confident president proclaimed in March 2001: "We can proceed with tax relief without fear of budget deficits, even if the economy softens." About that same time, the administration projected a budget surplus of $281 billion for 2001, $231 billion for 2002, $246 billion for 2003, $268 billion for 2004 and $273 billion for 2005.
Bush has since said that his optimism about budget deficits was based on the assumption that the economy would not hit a "trifecta" of trouble: recession, national emergency and war. But in February 2002 -- after the recession was declared, the terrorist attacks had occurred and war had begun in Afghanistan -- the administration continued to have upbeat predictions. Although it forecast a $106 billion deficit in 2002, it saw the deficit shrinking to $80 billion in 2003, $14 billion in 2004, and becoming a surplus of $61 billion in 2005. Those figures, too, quickly became seen as overly optimistic, as tax receipts continued to come in lower than expected. A year later, in 2003, the administration predicted a deficit of $304 billion for 2003 and $307 billion for 2004. In reality, the 2003 deficit was $375 billion, and the White House now expects a deficit of $521 billion for 2004.
This is, admittedly, something of a rehash of that last big economic thread we had, but one of the things I think Bush is going to have a serious problem with this election cycle is doubts about his credibility, because I really think that's a crucial foundation of his support. I think even his supporters will agree with that; that a large amount of people that support Bush do so because they think they can trust him to do what he says and say what he means.
However, the credibility gap is coming at him from a lot of angles, Iraq being the obvious one. Now, we can debate the rationale for the war all we like, but even the White House is largely in damage control mode when it comes to the WMD question. They know, and ADMIT, that they made an error there, and it isn't like it was a glancing issue when the buildup to the war was occurring. I don't have any interest in re-hashing that, but I'm pointing out that, at least some people, believe that Bush loses credibility there (and not just raving liberals, my mother, an avid Republican, thinks the same way, as does my grandfather, who was a Republican congressman).
Add to that stupid stuff like the national guard service, which doesn't present any huge issue but, for some anyway, chips away at the credibility issue.
And then there is the economy. Bush's administration hasn't just gotten a lot of forecasts wrong, they've not even gotten them in the right ballpark, and even when that was made obvious two or three times, they keep forecasting wrong. The budget thread I started is a good example. Even the DAY he released a budget everybody, Republicans and Democrats alike, said that, without even reading it, they knew it was going to be a few hundred billion off. Jobs are the same way. While most economists predict we're on the road to recovery, most also say that Bush's numbers are wildly optimistic.
My question: are all these things, taken as a whole, beginning to have an impact?
A couple of polls:
ABC News/Washington Post Poll. Feb. 10-11, 2004. N=1,003 adults nationwide. MoE ± 3. Fieldwork by TNS Intersearch.
"Please tell me whether the following statement applies to Bush or not. . . ."
Applies / Doesn't Apply / No Opinion
% % %
"He is honest and trustworthy"
All the other polls I've seen trend pretty much the same way. Note also that he's principally losing ground with independents, and that these trends aren't new to the Democratic primary (haven't even spiked in the Democratic primary), but are on a pretty consistent downswing for nearly a year.
Now, I'm looking at this category of poll results for a reason (vs say approve/dissaprove). I think that Bush was largely elected because of his air of credibility that is often pointed to by supporters as being "special" about Bush. By contrast, nobody trusted Clinton, but people liked him. Bush, it seems to me anyway, is largely defined as a candidate by his credibility, and thus I think it's very significant when that starts moving downward signficantly. Is this something the White House can, or needs to, reverse? If this trend continues, does that bode negatively for his re-election chances?
One more point, is that the two biggest issues this cycle are going to be the economy, always #1, and Iraq. Bush's credibility on Iraq, whether you agree with him or not on the ultimate effects of invading Iraq, is, by all accounts, sliding downward. And on the economy, even if the economy is doing BETTER 9 months before the election, it isn't how well the economy is doing that impacts voters, but how well they FEEL about how the economy is doing (a lesson Bush's father, among others, underscored, as the economy was picking up 9 months to his re-election bid, but nobody felt that way, so he got ousted largely on economic grounds). Are wildly optimistic predictions by Bush, then something that is going to serve him well? Namely, it seems to me anyway, he's sort of fucking HIMSELF on that, in that even if the economy is on the upswing and continues on that course, if it remains significantly below his predictions on job creation and deficit, it won't be SEEN as being on that much of a positive course by the voters (that's more of a question than a statement), because it'll be worse than predicted.
So, I guess, ultimately, the question is: Does Bush have a credibility gap problem with economic forecasts, and, if so, is that going to play to his disadvantage come election time?
The Conference Board's Consumer Confidence Index, which had improved last month, weakened significantly in February. The Index now stands at 87.3 (1985=100), down from 96.4 in January. The Expectations Index fell to 96.8 from 107.8. The Present Situation Index declined to 73.1 from 79.4.
The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households. The monthly survey is conducted for The Conference Board by NFO WorldGroup. NFO is one of TNS group of companies (LSE: TNN). The cutoff date for February’s preliminary results was the 17th.
“Consumers began the year on a high note, but their optimism has quickly given way to caution,” says Lynn Franco, Director of The Conference Board’s Consumer Research Center. “Consumers remain disheartened with current economic conditions, and at the core of their disenchantment is the labor market. While the current expansion has generated jobs over the past several months, the pace of creation remains too tepid to generate a sustainable turnaround in consumers’ confidence. And, with consumers anticipating economic conditions to remain about the same in the months ahead, their short-term outlook turned less optimistic.”
Consumers' assessment of current conditions was less positive in February than last month. Those claiming business conditions are “good” declined to 19.3 percent from 21.9 percent. Those claiming conditions are “bad” rose to 25.1 percent from 22.9 percent. Consumers claiming jobs are “hard to get” edged up to 32.1 percent from 31.6 percent. Those saying jobs are “plentiful” dipped to 11.8 percent from 12.3 percent.
Consumers’ short-term outlook weakened significantly. Those expecting business conditions to improve in the next six months dropped to 21.8 percent from 27.6 percent. Consumers expecting conditions to worsen over the next six months rose to 8.7 percent from 6.7 percent.
The employment outlook was also less favorable. Those anticipating more jobs to become available in the next six months fell to 18.7 percent from 22.0 percent. Those expecting fewer jobs to become available increased to 18.1 percent from 15.0 percent. The proportion of consumers anticipating an increase in their incomes declined to 16.7 percent from 19.2 percent.
Source: February 2004 Consumer Confidence Index, The Conference Board.
WASHINGTON, DC—President Bush proposed a $2.4 trillion election-year budget Monday that would boost defense spending, redistribute funds among government programs, and cross out the $477 billion deficit entirely.
"Nobody likes making cuts, but the nation's current rate of spending and the decreased tax revenues we've seen since implementing my tax cuts have created a deficit that we can't afford to carry," Bush said in a nationally televised address. "Someone had to have the vision, leadership, and courage to go in and erase that line altogether, no matter how unpopular and impossible that may be."
According to the Congressional Budget Office, the $477 billion deficit is the country's largest ever, easily topping the previous record of $290 billion in 1992. If the budget is approved, however, the deficit will roll down to $0.0 billion.
In the past, critics have accused the Bush Administration of responding to a mounting deficit and the ongoing recession with unsound fiscal policies like cutting taxes for the wealthy. Bush supporters say the deficit cut proves the wisdom of the president's economic plan.
"Bush has taken a brave step, one that was long overdue," Senate Majority Leader Bill Frist (R-TN) said. "He has taken charge of the budget problem once and for all, simply by saying 'The deficit stops here.'"
Faced with the difficult choice of either cutting government programs or raising taxes, Bush reportedly arrived at the radical new "deficit-cutting" solution late Sunday night, only hours before he was to announce his budget.
"I was staring at the figure for the deficit, and I decided that it simply could not stand," Bush said. "It was too high. Something had to be done. But Americans have been taxed and taxed. I say 'Enough taxes.' By my estimation, this historical crossing-out of the deficit will save American taxpayers millions, billions, and perhaps even bajillions of dollars."
The president then turned to Section 14-D of the official budget document, where the federal government's total expenditures, the GNP, and the difference between the two were listed. Using a black Sharpie, the president crossed out the third figure, eliminating it entirely.
Bush then held up the newly marked-up page and said, "My fellow Americans, I have solved the federal budget crisis."
The budget is expected to pass through the GOP-controlled Congress with little or no opposition.
Above: Government officials commend Bush for his deficit-cutting plan.
"I don't know why I didn't have this idea before," Bush said. "For years, we have tried to control the deficit by eliminating federal programs, lowering taxes for the rich, sending out checks to everybody, and God knows what else. None of us once thought to just draw a line through it."
The Bush plan is not without critics.
"President Bush drew a line through the deficit, yes, and we commend him for that," Sen. Blanche Lincoln (D-AR) said. "But that doesn't solve the country's budgetary problems. While he was at it, why didn't he add several zeroes to the end of our GNP?"
Political pundits have been largely impressed by the visionary slash.
"Opinions vary as to what the long-term effects of the deficit cut will be," New York Times columnist Paul Krugman said. "One thing, however, is certain: The growing federal deficit, a Gordian knot that for three years no amount of cutting taxes and spending money could unravel, has been sliced in two by the president's bold, radical new take on the problem."
A CNN/Gallup poll taken immediately after the president's announcement showed that 67 percent of Americans support his decision to draw a black line through the deficit, and thereby eliminate it.
"I'm tired of the tax-and-spend Democrats always talking about adding zeroes to the GNP," said Henry Strom, 40, of Bakersfield, CA. "How about we cross out our debts and get our affairs in order before we start adding zeroes? We need to cut this deficit and stand firm against printing deficits in future budgets, as well."
According to Bush's political advisors, later this week, the president will declare that the U.S. has universal health care.
An interesting link on the unaccounted for military spending in this year's budget, from a pretty good site (for military wonks, by military wonks...funkyrooster, you should check out the site if you get a chance). The emphasis here is mine, and feel free to ignore the whole editorial aspect of it, I'm quoting it mostly because it's the best and most comprehensive estimate I've seen of what the budget doesn't tell us, i.e. what the massive military spending is ACTUALLY going to cost us.
The President's FY2005 budget request boosts funding for the Department of Homeland Security by 10%. Most Americans welcome this news that more resources will be devoted to "National Defense" while limiting the growth in other government agencies to 0.5% in an attempt reign in the growing national debt. However, the President requests a 7% increase for the massive Department of Defense, which has little to do with National Defense; it was properly called the War Department until 1947. The USA now spends more money in real dollars (inflation adjusted) on its military than at the peak of the Vietnam war when some 500,000 GIs were combat, and more than during the Cold War when the powerful Soviet Union existed. For unknown reasons, the Bush Administration wants to spend a record $402 billion in FY2005, and this excludes the $50 billion needed to garrison Iraq and Afghanistan. In addition, the Pentagon's current plan expects annual funding to grow 30% over the next five years while record budget deficits threaten economic chaos.
Paul Kennedy's famous 1997 book "The Rise and Fall of the Great Powers" describes the fall of great empires in history and predicted the United States would follow the same downward path that destroyed all empires. Each empire's capital became increasing wasteful, arrogant, and corrupt. Leaders focused on foreign adventures rather than domestic issues while telling their citizens that sacrifices and high levels of military spending were needed to protect them from foreign demons. Each empire died after they as they ran up so much debt from foreign adventures that no one would loan them more money, causing a rapid collapse. The United States is following that exact pattern, as described last October, and is evidenced by this Pentagon plan for continual spending growth at three times the rate of inflation.
Note: These figures exclude money spent on overseas expeditions in Iraq and Afghanistan. They also exclude the cost of nuclear weapons development, testing and storage (in the Energy budget), the cost of veterans programs (in the Veteran's Administration budget), most military retiree costs (the Treasury budget), the cost of weapon grants for allies (State Department budget) and interest for money borrowed to fund military programs in past years (Treasury budget). It also excludes several billion dollars from exempting sales and property taxes at military bases (local government budgets), and the cost of tax free food, housing, and combat pay allowances. Ironically, this "Defense Budget" even excludes the cost of defending the USA itself, with the Coast Guard and Border Patrol (Homeland Security Budget).
Robert Higgs at the Independent Institute calculates the real "National Defense" budget is around $754 billion, excluding the military retirement portion paid for by the Treasury Department since its costs are hidden with Enron type accounting, although they are estimated at $30 billion a year. Also excluded are the cost of providing property and sales tax exemptions for the military, a benefit unknowingly paid for by local governments, and the hidden cost of tax free pay in combat zones and tax free food and housing allowances for all military personnel.
Americans are told the world is a safer place since the threat from Iraq has been eliminated, so why not decrease military spending? One excuse is that the US military must be rebuilt after deep cuts during the Clinton administration. After the end of the Cold War, military spending was cut only 10% under a post Cold war balanced budget plan devised by George H. W. Bush, the fiscally conservative President Bush, and then began to rise toward the end of the Clinton administration. The myth of "Clinton Budget Cuts" was refuted last September by a former member of the Reagan administration, Larry Korb. Hopefully, conservatives in Congress will reject the President's plan to increase military spending 30% over the next five years and freeze Department of Defense spending at this year's level, which is already 29% higher than when President Bush entered office in 2001; a figure which excludes costs in Iraq and Afghanistan. Here is where cuts can be quickly and easily imposed:
Cut $13.0 billion from RDT&E The US military spends almost as much on Research, Development, Testing & Evaluation (RDT&E) as on procurement to buy new weaponry. There is no risk with cutting RDT&E for weapons which will not be purchased for years to come. There is no foreign nation investing tens of billions of dollars in weapons research to overtake the USA. If $13 billion were shaved from RDT&E programs, the remaining $56 billion will exceed the entire defense budget of any other nation on Earth. This is still 35% higher than the $41 billion spent in FY2001.
Cut $4.2 billion from new base housing On-base housing is a remnant of the old fort system which devolved into pork projects. It has produced wasteful government cities like those envisioned by Karl Marx. Contractors charge the US military twice as much to build on base as they charge for identical houses off-base. This then requires billions of dollars in infrastructure support costs in the form of roads, sewers, and utilities.
Eliminating this entire category will have zero impact since construction projects take years to complete. Since the 2005 base closing process will shutter one fourth of US military bases, all construction should be delayed. One may argue that military housing costs will rise in a couple years as less government housing will be available. This is debatable since the overall costs providing base housing are so much higher. However, billions of dollars can be saved each year if Congress phases out the marriage incentive for E-3s and below.
Cut $4.1 billion from new military construction Again, with the 2005 base closings on the horizon, new military construction can wait. Why begin projects on a base which will close? However, some construction is vital at bases unlikely to close, so allow $1.2 billion for urgent needs, but hold back the rest until Iraq costs have shrunk and base closings finalized.
Cut $4.0 billion by limiting pay raises to inflation The President has proposed a 1.5% cost of living pay raise for federal civilian employees, but wants a 3.5% pay raise for military personnel. Several years of military pay raises at 2-3 times the inflation rate have boosted military pay 16% in real dollars these past five years. In contrast, a US Census report last year revealed that median household income declined 3.4 percent between 1999 and 2002.
New recruits now earn 30% more than full-time civilian workers their age. The most recent data reveals the average 40-year old full-time American worker earns $32,240 a year, while the typical 40-year old enlisted man (an E-7 with 22 years) earns nearly twice as much $59,956 in Regular Military Compensation, which excludes bonuses for deployments and reenlistments. A typical 40-year old officer (O-5 with 18 years) earns an amazing $106,992 a year, which is 228% more than Americans with bachelor's degrees, who average just $46,852, and even 181% more than Americans with advanced college degrees, who average $58,992. Therefore, it is no surprise that military morale is high when senior enlisted men make more than Americans with advanced degrees, enjoy 42 paid days of vacation/holidays each year (compared to 13 days for the average American), plus the option to retire after just 20 years without contributing a single penny to a retirement fund.
Most people are surprised to learn the Pentagon spends more in real (inflation adjusted) dollars on 1.4 million active duty troops today than when 2.1 million were in uniform in the early 1980s. Over 20 years of raises at up to three times the annual inflation rate has raised military pay far above American workers, which explains the high recruiting and retention rates despite frequent deployments and an unpopular war. It is true that some 130,000 GIs are overworked in Iraq, but they receive combat pay, separation pay, and tax-free basic pay. More than 90% of active troops are not in Iraq; so why another pay raise for them? Most will never go to Iraq, and many work less than 40 hours a week in beautiful places like Hawaii, London, Florida, and San Diego. If Congress wants to help those in Iraq, limiting the military pay raise to the rate of inflation will free funds for more body armor, armored Humvees, and better food and medical care in Iraq.
Recruiting and retention rates would be even higher if the Pentagon would advertise comparisons between military and civilian pay to eliminate the old myth of low military pay. Unfortunately, powerful lobbyists like those from the Association of the US Army continue to spread lies while greedy officers in the Pentagon produce bogus reports to justify even higher raises, despite occasional articles revealing the truth. This fraud is supported by government accountants and congressional staffers who benefit too. Each year, powerful federal employee unions push for military pay raises at 2-3 times the inflation rate, then successfully insist on "pay parity" because "they defend the nation too." As a result, the 700,000 civilian employees of the Department of Defense earn at least 50% more than comparable civilians, which is why all are alarmed at planned base closures. Meanwhile, Congressmen shower their office workers with big pay raises and enjoy political support with this form of vote buying.
Cut zero from procurement - There are dozens of wasteful and unneeded procurement programs which are too numerous to list here. While priorities must change, procurement funding remains small in the overall budget. Our military is facing serious shortfalls in weaponry and equipment as the post Cold war "procurement holiday" redirected resources to dubious RDT&E programs and unnecessary pay raises and new benefits which pushed the annual cost to $99,000 for each active duty serviceman. Most Congressmen believe the US Army must grow in size to garrison newly conquered territories in Kosovo, Afghanistan, and Iraq, yet the Pentagon is reluctant to expand the forced due to high manpower costs. They should realize that every billion dollars saved from unneeded pay raises allows for a permanent increase of 10,000 full-time troops.
While the leading Democratic presidential candidates are called "liberals", not one has addressed this issue of irrational increases in military spending. At a time when the nation is facing potential bankruptcy while borrowing tens of billions of dollars from communist China, the President cannot exempt any arm of government from budgetary discipline. Hopefully, fiscal conservatives in Congress will rally against this mindless spending like they did toward the end of the Reagan era. The cuts listed here can freeze military spending yet have no affect on readiness or operations overseas. If some believe a few box cutter armed Arabs pose more of a threat than the Soviet Union of the Cold war era, they should call for a major tax increase to fund a further expansion of our military. However, citizens would take an interest in military spending and reject more taxes for more government.
The Labor Department's jobs report is in for February, and it doesn't look good for Bush.
Job Growth Anemic in February
1 hour, 3 minutes ago
By Tim Ahmann
WASHINGTON (Reuters) - The U.S. economy added a paltry 21,000 jobs last month, according to a surprisingly weak government report on Friday that turned up the heat on President Bush (news - web sites) as he seeks re-election.
The February jobs report from the Labor Department (news - web sites) was the latest in a string that had fallen far short of expectations, dashing hopes employment would soon turn decisively higher.
"The job market is stuck in a cycle of inertia," said John Challenger, head of the outplacement firm Challenger, Gray & Christmas. "The fact is, we are going to have to get used to slow job creation in this country."
The details in the report were uniformly bleak.
Private-sector employment showed no gains. Government hiring was the only reason the nonfarm payroll count rose.
In addition, job creation in December and January was weaker than previously thought, by a combined 13,000 jobs.
And while the unemployment rate held steady at 5.6 percent, that was only because many people stopped looking for work. Employment as measured by a survey of households plummeted.
Chris Low, chief economist at FTN Financial, said the report was "unambiguously ugly." Joel Naroff of Naroff Economic Advisors called it "terribly disappointing."
Wall Street firms had forecast a February gain of 125,000 jobs and the market reaction was swift and sharp.
The dollar weakened and U.S. Treasury bond prices shot up, sending interest rates down sharply, on the view the Federal Reserve (news - web sites) would hold borrowing costs steady for a long time.
Expectations of steady rates helped support stock prices, which were little changed in mid-afternoon.
Economists warned consumer spending could falter, once a burst of tax refunds was spent if jobs did not turn up.
"The risk of an economic slowdown later this year has increased, persuading businesses to be extra cautious about hiring people," said Sung Won Sohn, chief economist at Wells Fargo & Co. in Minneapolis.
JOB LOSS POLITICS
Democrats reacted almost as swiftly as the markets, blasting Bush for the 2.2 million jobs lost on his watch.
"At this rate the Bush administration won't create its first job for another 10 years," Democratic presidential candidate John Kerry said in a written statement.
The Bush administration released a forecast last month that looked for average job growth of about 300,000 a month this year -- a forecast that looks increasingly pie-in-the-sky.
"The numbers ... reinforce our view that it would be a terrible mistake to raise taxes on American families and American businesses that are working to create jobs," Treasury Secretary John Snow said, referring to Kerry's proposal to roll back tax cuts for the wealthy.
An average of just 42,000 jobs have been created each month in the last three months, down from the 79,000 average of the prior three months. Economists say gains near 150,000 are needed each month just to keep pace with labor force growth.
In addition, the report showed pay gains have slowed, while the average length of time workers who had lost jobs stayed unemployed climbed to its highest level since January 1984.
Construction employment tumbled by 24,000 in February, while the factory sector shed 3,000 workers, the 43rd straight monthly drop. The service sector also proved unexpectedly weak, creating just 46,000 new positions.
Economists were hard-pressed to explain why job growth had fallen so far short of expectations, although some said poor weather may have played a role. For the most part, however, they cited the ability of businesses to boost output without taking on new workers.
Analysts said the Fed would not bump up overnight interest rates from their current 1958 low of 1 percent until robust jobs creation finally takes root. Many said the Fed would likely wait until late this year, if not 2005, to hike rates.
Some economists said the relative dearth of hiring more than 27 months into an economic recovery was unprecedented.
"We are in uncharted territory," said David Rosenberg, chief North American economist at Merrill Lynch.
The Bush administration CEA-Treasury-OMB macroeconomic forecast--the one on top of which the administration's budget estimates are built, and that was signed off on and approved by Treasury Secretary Snow, OMB Director Bolten, NEC Chair Friedman, and CEA Chair Mankiw--was put to bed early last December. It was released on February 9. Since then, administration officials have fled from the employment growth component of their own forecast as if it were some ravenous carniverous monster from a horror movie.
It is worth noting that, according to today's February employment release, the pace of payroll job "growth" in America was running 1.07 million behind the pace of the forecast put to bed only two months before. The forecast was already 1,071,000 jobs high the week that it was released.
That's a measure of how out-of-touch the Bush administration's High Politicians are with the state of the American labor market: from their perspective, we've had a million jobs' worth of surprising and unexpected bad employment news since December 2, 2003. For most of the rest of us, the employment news has been about what we expected.
The Bush team had been really hoping for a better report to come from this month. Nobody else was. This is going to be a critical issue for Bush. Remember, his father was presiding over an economic UPTURN by the time the election came. The economy was actually improving, things were getting better. But he ended up losing the election LARGELY on economic grounds, because of two fundamental truthes of economics and politics:
1. It isn't the economy the day of the election that matters, but the state of the economy several months prior to it. And,
2. It isn't even the real state of the economy that matters so much, but HOW people FEEL about the economy, several months prior to the election.
So, more bad news for Bush on that front. Kerry's quote was pretty funny though.
It seems to me that the forecast of 300 000 new jobs a month could be a bit of a millstone around Bush's neck. It's all very well saying '...prosperity [pause, change head position] peace [pause, change head position back] security [raise finger in half-pointing motion] for the American people...' but when forecasts are released they have to be met. Maybe thing will pick up next month.
quote:Originally posted by Smug Git It seems to me that the forecast of 300 000 new jobs a month could be a bit of a millstone around Bush's neck. It's all very well saying '...prosperity [pause, change head position] peace [pause, change head position back] security [raise finger in half-pointing motion] for the American people...' but when forecasts are released they have to be met. Maybe thing will pick up next month.
Plus this from another thread:
Game's not over yet, though, and good figures for March would certainly mitigate the damage from the poor February figures, although the credibility issue remains with respect to the predictions which, it appears, are extremely likely to be realised. In that regard, it could be possible to have a situation where job totals are really improving but still give the opposition a reason to criticise because they aren't improving as much as originally predicted by the administration.
That's the thing though, and why I titled this thread "credibility gap" and not "shitty economy", because the former isn't neccessarily directly correlated to the latter. The economy, by any reasonable estimate, is going to start improving soon, and from what I understand, it is very likely that the job growth rate will start improving in March and April (it'd be nearly impossible to not, truth be told). But by CONSTANTLY wildly over-estimating economic growth (and wildly under-estimating spending), it becomes a situation where even if Bush wins, he loses. He can say "see, we created these new jobs in March" and Kerry can say "see, the Bush administration can't create as much jobs as it thinks it can" and both will be right. The deciding factor may well be how economically secure Americans FEEL come November, which'll in part be based on which candidate better makes the case, and also in part on things like you mentioned (i.e. if the reaility is a paltry job increase, relative to predictions, coupled with effective rhetoric that Bush is losing us jobs, that creates a feeling of economic insecurity in voters, which translates to them voting for Not-Bush). If Bush would have made the case that "things will start improving slowly at first, but if you give me another four years, you'll see things steadily improving and by the end of my second term we'll be in more prosperous nation than ever..." instead of "We'll create 300,000 jobs a months from now on!" followed by "retraction retraction new false prediction retraction retraction", it doesn't play well for him, even IF we create, say, 30,000 new jobs in March.
The reason I make the Bush Sr - Jr parallel isn't because it's intellectually lazy, but because it's apt. Bush Sr was also handed a recession and was also beginning to pull the country out of it, slowly but surely, but by the spring before re-election, so many Americans were already convinced that he had done a shit job with the economy, it no longer mattered what the reality of the situation might have been.
I'm convinced the economy will steadily improve every month from here on out. But, Bush kind of fucked himself on it by playing it like a moron and wildly over-stating his case to the point where even his internal staff call the predictions ridiculous. If you couple all of that with the same problem on Iraq (wildly overstating even when doing so was unneccessary), as well as a few other credibility problems (which are bound to come up), then you have an overall credibility gap in several areas, and for a guy like Bush who runs on trust and honesty, you have a serious problem.