Economy in good shape and getting better

Thursday, September 2, 2004

Here is some commentary from Steve Forbes in Forbes magazine that I think is worth serious consideration:

Since when is good bad? A gaggle of media pundits, economists and democratic pols claim that the supposedly poor numbers for job creation in July are proof that the economy is still weak. Au contraire, you pessimists and/or Bush-haters, the economy is creating a good number of new jobs. In fact, it's in good shape -- and getting better.

You practically have to read the fine print to discover there are two surveys -- both conducted by the Bureau of Labor Statistics -- that take the pulse of our labor markets. One polls thousands of businesses concerning their payrolls and extrapolates national numbers from that data. The other does the same by sampling several thousand households to see who is working and who is not. The payroll survey is supposedly less volatile than its household cousin, but it tends to ignore a huge part of the economy, including independent contractors, sole practitioners and small businesses such as partnerships, LLCs and S corporations. An independent Realtor, who may be doing very well on his own, is for some reason not counted as employed.

The two surveys usually paint similar protraits of the job market. But if there are major economic changes -- new businesses arising, old ones withering -- the two can diverge sharply. We're in one of those periods now. In recent years companies have been relentlessly paring back expenses, yet despite the cost-cutting, hundreds of thousands of new businesses have been created. It takes time, however, fr these entities to show up on the survey radar. For example, the payroll survey finds the economy has lost 1.1 million jobs since George Bush took office, while the household sampling finds the economy has created a net 1.9 million new jobs.

Last month brought that disparity into sharp relief. While headlines focused on the unexpectedly low 32,000 new jobs turned in by the payroll sampling, the media ignored the astonishing results of the household survey -- a creation of more than 600,000 jobs. Average the two and you'll still come up with a mighty impressive number. ...

Some experts believe the payroll survey may be skewed, for technical reasons, because the BLS changed the way it classifies workers by industry. Normally, the agency would conduct parallel surveys to see if there might be some uanccounted-for anomalies or glitches in that adjustment. But this wasn't done. The reason: lack of money.

Other indicators of economic well-being support the notion that the household survey paints a more accurate picture of the labor market. Middle-class personal incomes have risen in each of the last three years (top income earners saw their earnings decline sharply, thanks to busted stock options and the sharp decline of capital gains). Corporate profits have shown impressive growth for more than a year. Business capital spending, which fell off a cliff in 2000, is now expanding at double-digit rates. In the past 12 months the economy has grown at a faster rate than during any comparable period in the 1990s. It should expand at a 4 percent-plus pace for the rest of the year. And stocks, despite their recent sloppiness, are worth $2 trillion more than they were when President Bush signed his tax-cut bill in May 2003. People's net worth is now higher than it was in pre-buble-bursting 2000.

The specter of a presidential election victory by prosperity-killing tax booster John Kerry has dampened stocks. Crankiness over the economy is utterly unjustified -- unless you believe John Kerry will be taking the oath of office on Jan. 20.

Gary Rust is chairman of Rust Communications.

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