Bushwhacked on the Economy

There were two rather interesting points worth repeating in Barron’s Up and Down Wall Street column this morning. The first will be familiar, the 2nd, perhaps less so.

As we noted the day before Election Day, It is Still the Economy, Stupid. Voter insecurity — about Jobs, rising costs of healthcare, education, housing, automobiles, food and energy — has much of the middle class on edge. This seems to have been lost on many people.

Alan Abelson addresses this very issue:   

"SURVEYING THE SHAMBLES AFTER THE VOTERS had pretty much laid waste to his personal aspirations and political blueprints for the next two years, the president professed to be baffled as to why the economy, which he characterized as "strong," failed to play a more powerful role in shaping the outcome.

We can help Mr. Bush here: The economy, in point of fact, was a big factor in deciding the election. But for an awful lot of folks, not a few of whom voted, it has been anything but strong.

It has been for some time a favorite conceit of the administration, its economic shills and the bullish claque on Wall Street that we’re enjoying the best of all possible worlds: a buoyant economy unsullied by inflation. In truth, we’ve had the most lopsided expansion in memory (and ours, sigh, goes back a long way), with a fair number of people making out quite well, but a much larger number — make that a really huge number — of people treading water at best.

As to inflation, computers, as economists never tire of telling us, undeniably are cheaper than ever. The question is, though: Have you every tried eating a computer? Or living in a house made of computers? Or driving a computer to work? For, by contrast, the cost of shelter and food and fuel and lots of other stuff that is still quaintly considered by most of the citizenry as essential ingredients of the good life are awfully pricey and getting pricier.

Nor should we forget, in taking the measure of the economy, that it rests on a very tentative foundation, indeed: a giant but rapidly deflating housing bubble floating on a vast sea of debt."

None of this will be particularly unfamiliar to the regular readers of this blog. What you may be unfamiliar with, however, is how some of the employment data shakes out.

It turns out that there’s much less to new job creation than meets the eye:

"In his reflections, offered at his post-election press conference, the president singled out the bright job picture, echoing the sentiments he expressed on release of the October employment data a couple of Fridays ago. And, to be fair, he didn’t lack for company. Chorusing Mr. Bush’s upbeat view of the report were the usual suspect Wall Street cheerleaders, who couldn’t wait to pick up their megaphones and hail the big upward revisions of the previous two months’ employment data, and the drop in last month’s jobless rate.

Except to confuse civilians, journalists and kindred innocents, we were and remain a little mystified as to what all the hoorahing was about. While there was a sprinkling of glad tidings, notably the modestly longer workweek in September and October, and a nice 0.4% rise in hourly wages, the report struck us as pretty lame. Worse than that, actually, because of what it seemed to portend for both jobs and the economy.

The consensus — which has become a synonym for wrong guessers — was looking for upwards of 120,000 additions to the nation’s nonfarm payrolls. Instead, the gain was a considerably more subdued 92,000. And as those trusty stewards of the excellent Liscio Report, Philippa Dunne and Doug Henwood, noted in their astute dissection of the numbers, the supposedly large revisions to previous months were not especially outsized, but pretty much in line with similar revisions effected over the past 45 years.

Somewhat ominous, too, was the fact that the improvement, far from widespread or even decently pervasive, was quite spotty — and those spots were either not terribly encouraging as indicators of future employment trends, or a mite suspect.

For example, in this survey, which was more or less critical because it happened to take place immediately in advance of the elections, a full 39,000, or 42% of the total gain, came courtesy of local governments, mostly back-to-school hires. Another 27,000 of the additions were in bars and restaurants and 23,000 were in health care.

In contrast, manufacturing shed 39,000 jobs in October and construction employment declined 26,000, weighed down by a hefty 31,000 shrinkage in payrolls connected to residential construction. The drop in homebuilding employment, Philippa and Doug point out, was conspicuous among the workers who finish houses, likely a preview of things to come.

But the larger point of all these numerical details — and we apologize if you’re feeling a trifle numbed by numbers — is that the bulk of jobs being added are not big payers, and the bulk of the jobs being lost are."   (emphasis added)

And that, in a nutshell, is the source of GOP woes. Sure, Iraq has become an ever larger morass, and voters know it. And we cannot overlook the high percentage of exit polls commentary regarding corruption.

But if the economy was throwing off more benfits to the folks below the top 10% of earners/asset holders, the election would not have been nearly so lopsided.

Yes, its still the economy — the bifurcated economy. I continue to be amazed how few people see the schism . . .


Alan Abelson
MONDAY, NOVEMBER 13, 2006   

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For the next edition of our series, Blog Spotlight, we travel West to Mark Thoma at the University of Oregon for his  Economist’s View.

Mark Thoma is a member of the Economics Department at the University of Oregon. He joined the UO faculty in 1987. His research involves the effects that changes in monetary policy have on inflation, output, unemployment, interest rates and other macroeconomic variables, and he has conducted research in other areas, such as the relationship between the political party in power and macroeconomic outcomes. Mark blogs daily at Economist’s View.

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