LET THE GOOD TIMES ROLL
By IRWIN M. STELZER
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June 17, 2004 -- 'THE economy is on steroids." That's how one happy, relieved Bushite put it to me recently.
The U.S. economy has grown at an average annual rate of 5.6 percent in the last nine months, enough time to give birth to a jobs boom. Even the manufacturing sector, which John Kerry says is being murdered by imports, grew in May for the 12th straight month, and at its fastest rate since the early '70s.
Best of all from the White House's point of view, the economy has added almost one million jobs in the past three months, 90 percent of them permanent, and almost 70 percent of them in industries that pay more than the national average hourly wage of $17.
The job growth is driving personal incomes up, which in turn is keeping cash registers ringing (actually, credit cards swiping) in stores and malls. Saks, Nordstrom and Nieman Marcus are all beating expectations.
Automakers, more nervous than most about the effect of rising oil prices, are heaving a sigh of relief. Sales rose 3.4 percent in May, spurred in part by "sales incentives" — read, price cuts — that averaged almost $4,000 per vehicle.
As if to prove that gas prices are of more concern to media types than to most Americans, consumers snapped up trucks and SUVs, shunning only the gigantic Hummer. Whether this behavior is based on a powerful preference for big, safe vehicles, or on the assumption that we are witnessing merely a temporary oil price spike, no one knows.
Consumers are not the only ones adding to the gathering boom. Usually grumpy businessmen are smiling, as profits rise, and as they learn to live with new corporate governance rules. More important, they are dusting off expansion plans, and investing in new plant and upgraded technology. Even hard-pressed firms are finding the going easier: PwC, the accounting and consulting group, estimates that the number of bankruptcy filings this year will be at a six-year low.
Even New York City's hard-hit economy is recovering. The city's key financial-services companies are scrambling to add staff; restaurants and hotels are heavily booked.
On July 4, ground will be broken for the highest of the towers to replace the two destroyed on 9/11, and in August the economy will receive a further fillip when thousands of free-spending Republicans descend on New York to renominate George W. Bush.
This city boomlet cheers the media types who dominate TV and print reporting to the nation. With the value of their apartments rising, their friends finding jobs and the invitations to the Hamptons once again plentiful, they have turned bullish, and are radiating optimism to the rest of America.
Yet no economy is perfect. With pricing power returning to businesses, Federal Reserve Chairman Alan Greenspan will soon begin raising interest rates to head off an inflationary spurt.
But rates will not go up by a lot, and not all at once. Greenspan knows that the recent increase in oil prices is likely to cool consumer spending on other items, acting to dampen some price increases. He knows, too, that the housing market is already coming off the boil in response to higher mortgage rates. Finally, he knows that rising productivity has kept wage costs from rising to inflation-inducing levels.
Still, prices are rising at an annual rate of 2.5 percent according to the Fed's preferred measure of inflation — faster in New York City. That's no reason for alarm, but given the rapid recovery it signals that the Fed's benchmark interest rate can't stay at 1 percent.
But fear not: A slight tap on the brakes won't bring this speeding economy to a screeching halt. The only thing that might is a terrorist attack here in America, or a takeover of Saudi Arabia by Osama bin Laden and his Islamofascists. That crowd prefers caves to palaces, and so might decide to close the spigots to bring down the West. In that event, we would have to respond with something more potent than a U.N. resolution.
Short of any such disaster, the outlook is for growth at somewhere between 4 percent and 5 percent, in an economy that's creating 10,000 jobs every day.
The feel-good factor that is so important to the president's re-election campaign has not yet emerged, but if the economy remains strong, perception should catch up with reality. The White House is hoping that will happen well before Election Day.
Irwin M. Stelzer is director of Economic Policy Studies at the Hudson Institute. |
