October 6, 2007

The Bush Economic Boom Rolls On

The Wall Street Journal and other media are taking note of the continuing strength of the Bush economic boom. From the WSJ:

We interrupt this fear of recession with a word from the job market: The Labor Department reported yesterday that the U.S. economy created 110,000 new jobs in September, along with upward revisions of 118,000 jobs for July and August.

This is the latest sign that the recent financial panic is beginning to look more like a summer squall than an economic climate change. That's certainly what equity investors seem to be saying, as they once again bid up shares yesterday. Stocks have regained the heights lost during the August scare, so most people who held on for the ride haven't lost anything but a little sleep.

Credit contagion aside, the greatest fear among economists has been that the housing implosion will cut into consumer spending. Yet nothing influences consumers more than a healthy jobs market; they really start spending less when they see their neighbors out of work and fear they could be next. So far this isn't happening. Job growth has slowed from the pace in 2005-2006, but it remains strong enough to accommodate most new entrants to the workforce and thus keep the jobless rate stable (up 4.7% from 4.6%).

Mortgage meltdown. Credit crisis. Yet the U.S. economy keeps rolling. I've called it the Rocky Balboa Economy in the past. But then again, the "Italian Stallion" got knocked down from time to time. This boom, while it's taken plenty of hard shots, always manages to stay on its feet.

Today's solid payroll numbers are more evidence of that. Net new jobs for September were up 110,000, while August payrolls were revised upward to a gain of 89,000 from a loss of 4,000 in the Labor Department's preliminary estimate.

Now, to be sure, job growth has slowed. The economy averaged 97,000 monthly new jobs in the third quarter vs. 126,000 in the second quarter, 142,000 in the first quarter, and 189,000 in the fourth quarter of 2006. Moreover, the unemployment has ticked up to a still-low 4.7 percent. Yet as investment firm JPMorgan notes, "At the same time, this is very different from the message that had been sent by the unexpected 4,000 drop in the initial print of August payrolls." It sure is. That August number made the economy and labor market look as if they were in free fall.

Great news on the wage front, too. As economist Michael Darda of MKM Partners notes, nonsupervisory wages - adjusted for inflation - are up 2.3 percent during the past year vs. a 10-year moving average of 1.3 percent and an average rate of 0.4 percent since 1971. Even the left-of-center Center for Economic and Policy Research, a D.C.-based think tank, had to grudgingly concede that the wage picture is solid: "Wage growth remains relatively healthy. The annual rate of wage growth for the last three months was 4.3 percent. This is up slightly from the 4.1 percent rate over the last year. With inflation at slightly under 3.0 percent, this is sufficient to allow a respectable pace of real wage growth, if it can be sustained."

So, who do we blame for our terrible economy today? Me, I blame the Bush tax cuts.