State of the Economy

As the 2004 presidential campaign shifts to high gear, one of, if not the, most important issues for debate will the state of the economy. John Kerry, and other Democrats, have stated repeatedly that the economy is awful and the Bush administration has the "worst jobs record since Herbert Hoover and the Great Depression.". The question that reporters fail to ask is how accurate is this characterization. Few, even among the Democratic Party, would dispute that the past 4 years have a very strong growth in GDP while inflation has remained very low. A number of leading economic indicators indicate a very strong economy. However, the rhetoric of the Democrats and the continual bombardment of the media is that the economy has not produced new job, and when it has, the jobs are low wages. This allegation merits investigation.

Has the Bush record really been that bad? The primary data John Kerry and the Democrats are using to claim that Bush has lost the most jobs since Herbert Hoover are the Bureau of Labor Statistics' Current Employment Statistics (survey of the payroll 400,000 establishments), specifically the Seasonally Adjusted Non-Farm Payroll. The BLS no longer offers data back to the Hoover years (1939 is the first year available), but we can see several trends on this data:
•Between January 2001 and June 2004, payrolls declined by 1.1 millions jobs.
•While there have been several years (January – January) with declining job numbers, no President’s term in office saw an overall decline in the number of payroll jobs.


Thus, one might concluded that John Kerry is correct when he says this is the worst job market since the Great Depression, but that isn’t taking into account all the data.

First, George W Bush’s first term has not yet ended, and he by the end of the year, he may see an overall gain in payroll jobs. Consider that the Democrat’s rhetoric originally stated something like “3 million jobs lost under Bush.” According to this series, payrolls declined by 2.6 million jobs between January 2001 and August 2003 (low during the Bush administration), but employers have added 1.5 million jobs by June 2004.

Secondly, seasonal adjustments (defined here) adjust by adding to the number of payroll jobs in January and subtracting from the number of jobs in June (summer). When looking at the absolute number of payroll jobs (Total Nonfarm Employment, CES series), we actually saw an increase of 1.9 million jobs between January 2001 and June 2004. While this increase may not hold up during the traditional winter layoffs, we must consider that the job loss touted by Kerry is based on a statistical estimate of seasonal changes, not acutal jobs.

Furthermore, the BLS also conducts a household survey (Current Population Series) which provides employment data. To quote from the BLS website, "both the payroll and household surveys are needed for a complete picture of the labor market." Why is the household survey important? "The household survey provides a broader picture of employment, including agriculture and the self employed;" the employer survey ignores farm workers, self-employment, and new firms. (For more info on the differences, go here).

Using this data, we see that:
•Between January 2001 and June 2004, the number of employed persons increased by 1.2 million (seasonally adjusted).
•In absolute numbers, the economy added 3.7 million jobs between January 2001 and June 2004 (743,000 as of January 2004 for those concerned with not adjusting for seasons).
Thus, when we included farm jobs and self-employed workers, but surveying households rather than companies, we see that the Bush administration has been creating jobs.

Nitpicking about the number of actual jobs created is merely to prove that the rhetoric of jobs losses that are the "worst since Hoover" is only loosely based on data, and doesn't hold up to scrutiny. I expect we will frequently hear about the number of jobs lost since Bush took office, and I wanted to enlighten my readers, as to the origins and misnomer of that figure, so they are not misled by Democratic demagoguery.

Understanding the actual condition of the job market is better understood by examining the unemployment rate. While it is difficult to determine whether the absolute number of jobs created during the Bush administration is large or insignificant (perhaps too low) given population increases and the number of people looking for employment. The unemployment rate helps to make sense of this. Again looking at the BLS household survey we see that the umemployment rate as of June 2004 was 5.6%. This does represent an increase from when Bush took office (4.2% in January 2001), but the rate has declined since June 2003 (reaching a Bush administration high of 6.3%). So what does the 5.6% (and falling) unemployment figure mean? Consider this:
•Economists consider “full employment” (the rate at which everyone in the economy who is willing to work at the current market rate for someone of his skills have jobs) to be 3%, i.e. the lowest unemployment rate we should normally have.
•During the Great Depression (i.e. the Hoover administration that the Bush economy has compared too) unemployment reached an estimated 25%.
•During the 1982 recession, unemployment peaked at 10.8%.
•Unemployed reached 7.8% in June 1992, following the recession.
•In November 1984, when Ronald Reagan was overwhelmingly re-elected because of strong economic growth, unemployment was at 7.2%
•After the strong economy of the Reagan years, unemployment was near where it is today, at 5.4% (January 1989)
•The unemployment rate in May 1996 was exactly what it is today (5.6%), when then-President Bill Clinton was campaigning on his positive economic record of job growth.

While unemployment has risen under President Bush from its extremely low level at the end of the 1990s, it remains at a relatively low level. Some critics claim that low unemployment of late has been caused by people dropping out of the workforce, and thus not being counted as unemployed. Not so - more individuals are considered "in the labor force" than at any point in history, and 5.8 million more individuals are employed or looking for work than in January 2001. The labor force participation rate is virtually the same as when Bush took office (66.5% in June 2004 vs. 66.8% in January 2001) and is only marginally less than the all-time peak of 68.1% in August 1997. It is certainly not the worst economy for jobs since the Great Depression, nor is it even close. Unemployment was at historically low figures prior to Bush taking office, and despite a recession spurred partially by terrorist attacks, unemployment remains low.

Naysayers will still point to economic woes, claiming that the jobs created are low-wage jobs, or that wages haven't kept up with inflation. This allegation doesn't hold up with economic data either. New jobs are good paying jobs, and real wages are climbing. According to the BLS payroll survey, hourly wages (adjusted for inflation) rose 2% in the first three-and-a-half years of the Bush adminstration. Wages are growing faster than inflation. While this growth in wages is not as rapid as during Clinton's second term, it represents greater growth in real dollars with 6 months left in his term) than in Clinton's first 4 years, or in any other Presidential term in the last thirty years.

So to summarize: more people have jobs than they did when Bush took office; unemployment is much lower than after any other recent recession and is about the same as it was in the late 1980s and mid 1990s, and real wages continue to grow. Doesn't sound like such a bad economy to me.