Policy Memo: The Economy and the Middle Class

George W. Bush ^ | June 14, 2004

[RWR8189]

MEMORANDUM
FROM: BC'04 POLICY DEPARTMENT

Introduction
The U.S. economy is firing on all cylinders.  Under President Bush's leadership, we have created 1.4 million jobs since August and the economy is growing at its fastest rate in 20 years.  Despite this positive news, John Kerry continues his misery tour and furthers his efforts to talk down the growing economy.  Because the accepted Misery Index measurement is at a historic low, Kerry has created his own index to find misery in America's economy, and justify his absurd comparison of our growing economy to the Great Depression.

Faster Economic Growth

• The economy has now grown for 10 consecutive quarters or 2 and a half years.

• The economic growth during the past 12 months is faster than any year in the 1990s.  It’s the fastest in nearly 20 years.  (Source: Bureau of Economic Analysis) Private forecasters have ratcheted up their economic growth forecasts for the rest of this year to 4.7%, which would yield the fastest growth in 20 years.  (Source: Blue Chip Economic Indicators, 6/10/04)
• U.S. economic growth is well above that of our key trading partners.  (Source: OECD)  

Job Creation Is Picking Up Momentum
In the recessions and recoveries of the 1980s and 1990s, the unemployment rate peaked at 10.8% and 7.8%, respectively.   In the current economic recovery the unemployment rate peaked at just 6.3% last year and dropped to 5.6% in March and again last month.  (Sources: Bureau of Labor Statistics)

• The 5.6% unemployment rate of May 2004 is the exact same rate that existed in May 1996 as then President Clinton ran for re-election by promoting his economic performance.  In June 1996 Gene Sperling -- then an economist for President Clinton and now a campaign advisor for Senator Kerry -- said, "If they (Dole campaign) want to go head to head on the economic record, let’s rock and roll." (Source: Richard Stevenson, "Dole Campaign Plans an Attack on Clinton’s Economic Record," New York Times, 6/27/96)
  
• In fact the average unemployment rate for the January to May period for 2004 is not much different than for the same period in 1996.  The big difference is that President Clinton inherited a growing, job-creating economy, while President Bush inherited a faltering economy.
• At 5.6%, the unemployment rate is below the average unemployment rate of the 1990s, 1980s and 1970s. 
• The decline in unemployment has included minorities.  For example, the Hispanic unemployment rate has declined from 8.1% a year ago to 7.0% in May.
• The decline in the unemployment rate has occurred throughout the country, declining in 47 out of 50 states in the past year.  In fact, 27 states have an unemployment rate at or below a low 4.9%.
  
• Payroll jobs have increased in 44 out of 50 states in the past year.
• Nationally, payroll jobs have increased for nine consecutive months for a total increase of 1.4 million.
• The average payroll job growth this year (2004) has been a solid 238,000 jobs per month.  By comparison, payroll jobs grew an average 233,000 per month for the same January to May period in 1996.
• The manufacturing sector has now added 91,000 jobs this year, which is six times more than were created in the same period of the Clinton administration.
• College grads are facing the best job market since the recession.  (Source: "Surprise Gifts for this years College Graduates: Job Offers," Wall Street Journal, 5/11/04)
• According to the household survey, self-employment increased by 137,000 in May and by more than 200,000 from a year ago (note: the payroll survey does not count self-employed). Moreover, management and professional positions increased by more than 550,000 jobs over the last year. 
  (Sources: Bureau of Labor Statistics)

Quality, Good-Paying Jobs

Since the rapid job creation of the past several months has dumped the "jobless recovery" charge into the dustpan of erroneous economics diagnosis, the naysayers have retreated to the accusation that the new jobs are not good jobs.  Here again, the analysis is flawed and the charge baseless. Consider:

• Over 70% of the payroll jobs added in May were in industries that pay more than the national average for non-supervisory workers of $15.64 per hour.  Two-thirds of the 1 million payroll jobs added since the beginning of this year were in industries that pay more than the national average.
• Average hourly earnings have increased for five consecutive months and are up from the same month a year ago.
• Wage increases are broad-based.  Average hourly earnings increased in 8 out of 10 private sector job categories in May.
• Average hourly earnings of non-supervisory workers were quite strong in May, growing at 3.7% annual rate.  They are now up 7% since 9/11.  Hourly earnings have grown 0.1 percentage points faster during President Bush’s first term than during the same period of the Clinton Administration.
• In the past year, real hourly compensation in the non-farm business sector has gone up 2.7% (broader definition of pay than the earnings measure used above).  That’s faster than the average growth in the 1990s of 1.5%. Since President Bush has been in office, real hourly compensation has gone up 1% per year.  During President Clinton’s first term it increased just 0.2%.
  (Sources: "The Employment Situation: May 2004," Bureau of Labor Statistics, 6/4/04; "Productivity and Costs," Bureau of Labor Statistics, 6/3/04)

Service Sector And Temporary Jobs
Some complain that the new jobs are service sector or temporary jobs.  The U.S. economy is a service-based economy and has been for some time.  The growth in temporary jobs is a leading indicator of job growth in other, non-temporary components and is not unusual given the circumstances of the past few years and where we are in the business cycle.  Finally, only 13% of the new jobs created since January are in the lowest paying industry category of leisure and hospitality.

• The service industry was the driving force behind job growth during the 1990s, accounting for nearly 90% of the job growth. 
• The service sector makes up 83% of the labor force and this level has been rising for decades.
• In May, 25% of the overall net new job creation occurred in the professional and business services sector.  Jobs in the sector averaged $17.37 per hour, which is above the $16.07 average for the manufacturing sector and the $15.64 average for all wage positions nationally.
• The professional and business services sector is composed of: legal, engineering, surveying, inspections, computer design, consulting, management of companies and enterprises, research, advertising, veterinary services, admin services, etc.
• Over the past three months, just 36% of the jobs created in the professional and business services sector were temporary.  This is roughly in line with the percentages seen during the same period in 1996.
• Moreover, in May, the temporary category was only 14.96% of the all the jobs in the professional and business services sector.  This is below the percentage seen in late 1998, 1999, 2000 and early 2001. 
• Also in May, the temporary category was only 1.87% of all payroll jobs.  This is at or below the levels seen in late 1998, 1999, 2000 and early 2001.
• In President Clinton’s first term, the economy created more temporary jobs (642,000) than manufacturing jobs (517,000), yet the Clinton advisors were proud of their record on jobs.
  (Source: Bureau of Labor Statistics)

Manufacturing Is Rebounding
While manufacturing employment has been falling as a percent of the workforce since the late 1940s (from 32% to about 12% today), the past decade has proven to be especially challenging for the manufacturing sector and manufacturing employment.  This is also true for many other developed economies, which have experienced the same long-term downward trend in manufacturing employment as a percent of the labor force but also in absolute terms too.  

• The Asian financial crisis of the late 1990s and the surging dollar hurt the U.S. manufacturing sector, which was struggling well before the stock market bubble burst and the economy tipped into the recession.  In fact, manufacturing employment peaked in early 1998 and even earlier for many of the industrial states: June 1995 in Ohio and February 1995 in Pennsylvania. (Source: Bureau of Labor Statistics)
• Between 1989 and 1999 manufacturing employment actually declined by 4.4%, while retail trade and services actually jumped by 17% and 45% respectively.  (Source: Bureau of Labor Statistics)
• The 2001 recession was especially painful because many U.S. export markets for manufactured goods also contracted and/or labored under sluggish growth that had existed for years. 
  • The massive investment overhang from the late 1990s substantially exacerbated the downturn in business investment -- and therefore manufacturing -- that occurred in 2001, 2002 and early 2003.  "Gene Sperling, director of the National Economic Council under President Clinton, said that U.S. businesses are still shedding excess manufacturing capacity and technology infrastructure created while riding the technology stock bubble of the 1990s."  (Source: Chris Flores, "Sperling: Economy Holds Signs of Hope," Daily Press, 3/23/03)
    
• Strong technology-driven productivity gains also worked against a quick recovery in manufacturing employment.
• The President’s policies that lowered the cost of capital and encouraged new investment, along with low interest rates, have helped fuel a strong manufacturing recovery.
  
• Over the past several quarters, manufacturing activity has accelerated and has recently reached levels not seen in close to 20 years.
• The manufacturing employment index is at the highest level in 31 years.  (Source: ISM, 6/1/04)
• Factory orders are 12.5% higher than a year ago.
• In April, industrial production increased 4.9% (year-over-year), the fastest rate in more than three years and the level is back to pre-recession levels.
• Capacity utilization increased in five of the last six months increasing 2.5% over that same period.  (Bureau of Economic Analysis, 6/3/03)
• The Federal Reserve’s regional economic outlook noted that economic activity increased across the nation during the last three months.  (Source: "Beige Book," Federal Reserve)
  
• The economy has created 91,000 new manufacturing jobs since January of this year. In the same five month period in 1996, the economy actually lost roughly 1,800 manufacturing jobs and for Clinton’s entire 8 years, the economy generated only an average of 5,000 net new manufacturing jobs per month.  (Source: Bureau of Labor Statistics, 6/4/04) 

Outsourcing
Some have exaggerated and distorted the outsourcing phenomenon for political or commercial gain.  Until this month, the data on outsourcing has been scarce to non-existent with a few private sector estimates attempting to fill the gap.  The new BLS data, while not perfect, indicates that outsourcing has proved to have much less of an impact that has been charged and is a much less significant factor than the increase in productivity.

• Few U.S. jobs are lost because of foreign outsourcing, indicating that concerns that U.S. companies are exporting jobs may be overblown, Labor Department data released Thursday show.  (Source:  Rex Nutting, "Foreign Outsourcing Costs Few Jobs, CBS Marketwatch, 6/10/2004)
• For the first quarter of this year, 4,633 workers were laid off because their job moved overseas.  That’s just 2.5% of layoffs.  The trend of job relocation is real, but the practice is much more prevalent in shifting jobs domestically.  (Source: Bureau of Labor Statistics, 6/10/04)

• The bulk of outsourced jobs never leave U.S. shores, the government said on Thursday in a new report suggesting concerns over American workers losing jobs to cheaper foreign labor may be exaggerated.  "In more than seven out of 10 cases, the work activities were reassigned to places elsewhere in the U.S.," the Bureau of Labor Statistics said in its report on mass layoffs for the January-to-March period.  (Source:  Andrea Hopkins, "Outsourcing Causes 9 Pct. of U.S. Layoffs - Govt.," Reuters, 6/10/2004)
  
• Thursday's figures should help put offshoring in its proper context, economists said. "These are minuscule figures in a labour market consisting of 138m workers," said Alan Ruskin, director of research at 4Cast, an economic consultancy. (Source:  Christopher Swann, "Jobs data show little impact from offshoring," Financial Times, 6/10/2004)
• Nevertheless, market economists remain convinced that offshoring is doing little to damage job growth in the US and may even be adding to jobs.  (Source:  Christopher Swann, "Jobs data show little impact from offshoring," Financial Times, 6/10/2004)
• Workers are much more likely to lose their jobs to fellow Americans than to foreigners.  (Source:  Rex Nutting, "Foreign Outsourcing Costs Few Jobs, CBS Marketwatch, 6/10/2004)
• U.S. multinationals have maintained a relatively stable mix of operations between their U.S. and foreign operations. (Source: Bureau of Economic Analysis)
  
• Former top Clinton economic advisor, Laura D’Andrea Tyson, recently noted that "contrary to popular belief, U.S. multinationals continue to set up foreign operations not primarily to serve the U.S. market from low-wage production platforms but rather to serve overseas markets from local operations." (Source: Business Week, 6/7/04) 

After-Tax Income Up
While there are a variety of ways to measure how much workers are being paid, the more relevant measurement is how much money they actually take home.  Real disposable personal income is adjusted for inflation and measures how much income workers have after taxes.

• Real disposable personal income increased at a 4.9% annual rate in the first quarter of 2004, faster than its annual pace in 2001, 2002, and 2003.
• Since President Bush has been in office, real disposable personal income has increased 10% versus 7% for the same period of President Clinton’s first term.
  (Source: "Personal Income and Outlays: April 2004," Bureau of Economic Analysis, 5/28/04)

Consumer Spending Consistently Strong
Unlike many previous downturns in the business cycle, consumer spending never wavered in the past three years.  This spending reflects the confidence consumers have in the economy and the higher after-tax income they have in their pockets.  A few recent examples are below.

• In the first quarter of 2004, consumer spending increased 3.9% and accounted for more than half the increase in output.  Unlike previous downturns in the business cycle, consumer spending has remained resilient throughout the downturn and has gained momentum in the recovery. (Source: U.S. Bureau of Economic Analysis, 5/25/04)
• Retail and food service sales rose more than expectations at 1.2% in May.  They have increased by 8.9% on a year over year basis.  (Source: U.S. Census Bureau, 6/14/04)
  Car sales are "sizzling."  Overall, May auto sales rose 3.4% from a year ago, beating forecasts and making it the best sales month this year.  (Source: Earle Eldridge, "May was a sizzling month for auto sales," USA Today, 6/4/04)  

More Workers Building Wealth
Not all of the higher income is being spent, some is being saved.  Saving and investing is a key to robust economic growth and America’s workers are saving, investing and building more wealth.  A variety of records have been broken this year.

• Homeownership has hit an all-time high of 68.6%.  This means that more than two-thirds of all households in America own their home.  For the first time ever more than half of minority households own their home.  (Source: U.S. Census Bureau and Department of Housing and Urban Development, 4/22/04)
• Household net worth reached a new record in the first quarter of this year at $45.1 trillion. Household assets are now 5.5 times greater than household liabilities.  (Source: "Flow of Funds Accounts of the United States," Federal Reserve, 6/10/04)
• 401(k) values are at an all-time high, averaging $64,600.  (Source: "Hewitt Study Shows U.S. Employees Sluggish in Interacting With 401(k) Plans", Hewitt, 5/24/04)

[RWR8189]

bttt

[sixmil]

For the first quarter of this year, 4,633 workers were laid off because their job moved overseas. That’s just 2.5% of layoffs. The trend of job relocation is real, but the practice is much more prevalent in shifting jobs domestically. (Source: Bureau of Labor Statistics, 6/10/04)

Kind of like the ANWR debate in reverse.

[WilliamofCarmichael]

With the references this is an excellent document. The references are all free, I hope.

It helps to have sustained job creation mirroring normal recoveries.

Things really do look good. Dem Rats ought to give up on the economy. Even with the mainstream media's 100 percent cooperation they and the mainstream media's activists pretending to be "journalists" cannot pull off another "It's the economy, stupid." Fool us once shame on you. . . .

IMO there was a little spinning going on in the outsourcing segment. For example, I don't think the issue was ever outsourcing. We know that that's been part of the economy for decades. The issue was offshoring and articles referencing the study contained this strange caveat, "The department's mass layoff data covers companies with more than 50 workers filing for unemployment benefits for a month or more. The figures do not count outsourcing at smaller companies or outsourcing that did not involve mass layoffs."

Also, there's that nuance thingy. "A recent Goldman Sachs survey indicated that US firms have moved 300,000 to 500,000 jobs offshore in the past three years." To wit, jobs going off shore without there first being layoffs.

The posted documented says "Workers are much more likely to lose their jobs to fellow Americans than to foreigners." Fine.

The 300,000 to 500,000 jobs created offshore in the past three years were not first assigned to Americans. This is not a President Bush thing. It would be happening no matter who was President.

My references are from "Few jobs lost to BPO, says US govt survey," June 11, 2004 http://us.rediff.com/money/2004/jun/11bpo2.htm

[Willie Green]

The U.S. economy is a service-based economy and has been for some time.

This is the only intellectually honest statement in the entire policy memo.
The actual shift occurred in the late '60s ~ early '70s when massive social welfare and regulatory legislation were enacted in implementation of LBJ's "Great Society" vision. This is the period when federal agencies such as OSHA and EPA were established and the Endangered Species Act was passed, restricting access to our natural resources and placing economic burdens on our wealth-creating private sectors: farming, mining, construction and manufacturing. Also during this period, massive expansion of our social welfare and entitlement programs (The War on Poverty") began to redirect and redistribute wealth into the service sectors: Medicare, Medicaid, the Elementary and Secondary Education Act and Head Start, Aid to Families with Dependent Children, The Economic Opportunity Act, etc. etc. etc.

It should be no surprise that this is the period when Government began its insatiable appetite for deficit spending, and our nation became vulnerable and dependent on importation of oil.

No, Bush is not a left-wing extremist like Kerry or Klinton.
But that is NOT what defines a conservative.
Bush and his neocon policies are more those envisioned by LBJ: "Great Society" deficit spending on both Guns and Butter. Produce nothing and import everything vital for consumption. Forget about the Debt that fuels this idiocy. Live for today and let your children worry about how to pay for it.