http://www.msnbc.msn.com/id/5852190/site/newsweek/Sept. 6 issue - As Republicans gather in New York, the lackluster job market must dishearten President Bush. He had hoped that a strong economic recovery would favor his re-election, and in some ways, he's gotten his wish. Gross domestic product (the economy's output) is almost 9 percent higher than at the peak of the 1990s boom, and business investment—which had dropped sharply—is up 14 percent from its low point. Jobs remain an obstinate exception. Monthly increases in payroll employment improved earlier this year, averaging 242,000 from February to May, but have slowed. They were 78,000 in June and 32,000 in July.
Soft job markets in some swing states must especially worry Bush. The unemployment rate is 5.5 percent nationally but 5.9 percent in Ohio and 6.8 percent in Michigan. Beyond that, weak job growth casts a broader pall. Consumer confidence, though well above recession levels, has retreated from recent peaks. Ditto for stocks; the Dow (as of Aug. 27) was off 5 percent from its 2004 high. Wage gains have been modest, in part because there's surplus labor. For hourly workers, wages—after inflation—fell about 1 percent from July 2003 to July 2004, says Jared Bernstein of the liberal Economic Policy Institute.
Over the long term, budgets should be balanced. But in an economic downturn, they should move toward deficit to stimulate private spending. Well, you can't fault Bush there. In fiscal 2000, the surplus was $236 billion; for fiscal 2004, the Congressional Budget Office projects a $422 billion deficit. It's possible to condemn (as many Democrats do) Bush's pro-rich tax cuts. A more middle-class tilt might have translated into more consumer spending. It's also possible to retort (as many Republicans do) that Democrats would have moved more slowly toward deficits. Regardless, the tax cuts bolstered private spending. But the resulting economic growth produced fewer jobs than expected. Why?
Although outsourcing could be the reason, it probably isn't. The stories about software jobs and call centers moving to India aren't make-believe. But the numbers are small. Charles Schultze of the Brookings Institution concludes that perhaps 155,000 to 215,000 U.S. service jobs shifted abroad between late 2000 and 2003. Similarly, Schultze reports that government surveys attribute only about 4 percent of mass layoffs in the past two years to "import competition" and "relocation overseas." Even if these estimates are too low, they suggest that the impact of job loss abroad is exaggerated, writes Schultze.
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