March 04, 2004,
President George W. Bush will be attacked no matter what tomorrow's employment report reveals about the U.S. jobs climate. If the economy sheds jobs Bush's tax cuts will be blamed for increasing federal deficits. If the economy adds jobs at a high monthly rate (more than 200,000) critics will charge that Bush has still presided over a net loss since taking office. If the gains are modest, as they have been in recent months, the chorus will sing that job gains were greater under Bill Clinton, who reigned over a budget surplus.
But the loudest chorus could well come from the five states in the industrial Midwest.
At first glance, weakness in employment growth appears to be President Bush's economic Achilles Heel. Other indicators are performing well. The Dow Jones and Nasdaq stock averages rose in 2003 after three straight annual declines. Real GDP (inflation-adjusted gross domestic product) has expanded nine consecutive quarters since the recession ended in November 2001. Industrial production and real income have risen. Only nonfarm payroll employment has declined from 132,388,000 (January 2001) to 130,155,000 (January 2004, preliminary data).
On closer examination, these job losses appear in a different light. National employment has expanded five straight months, creating 366,000 new jobs since August 2003 (U.S. Bureau of Labor Statistics). Most gains are in the service-producing sector, where employment reached a trough in February 2002 and has increased by nearly a million jobs in the interim. Services represent more than 80 percent of U.S. employment, yet losses that started under Clinton in the goods-producing sector, primarily manufacturing, have offset these gains. (See "The Clinton Manufacturing Recession.")
Media reports emphasize "manufacturing job losses for 42 consecutive months since July 2000." The false impression is that the trend started late in the Clinton presidency. A more detailed assessment is as follows: "Manufacturing employment has declined 61 of 70 months since reaching its cyclical peak in March 1998." It was 17,331,000 in July 2000, but it was a higher 17,637,000 in March 1998, the peak it hit earlier in the Clinton era. The manufacturing jobs decline started early in Clinton's second term, nearly three years before he left office. Manufacturing employment has fallen 3.3 million (19 percent) from its March 1998 peak under Clinton.
More than 700,000 of these job losses since March 1998 have occurred in five key industrial heartland states: Ohio (193,200), Illinois (184,000), Michigan (172,700), Indiana (85,500), and Wisconsin (83,700). Pennsylvania, another industrial state, has lost 161,000 jobs.
President Bush has made frequent trips to the industrial Midwest, yet it is generally unreported that manufacturing employment peaked under Clinton. The peaks are as follows: Pennsylvania (February 1995), Ohio (June 1995), Illinois (January 1998), Michigan (July 1999), and Indiana and Wisconsin (February 2000).
Meanwhile, critics of the president who concede that manufacturing employment peaked under Clinton, also point to total U.S. nonfarm employment to buttress their case against Bush's tax cuts. Total U.S. employment did peak in March 2001, but it peaked nine months earlier (June 2000) on Clinton's watch in the industrial Midwest. These peaks are as follows: Indiana and Ohio (May 2000), Michigan (June 2000), Wisconsin (November 2000), and Illinois (November 2000). Pennsylvania's total employment peaked in March 2001.
Asset bubbles can have serious consequences for an economy's goods-producing sector. (This includes job creation. The issue was even debated at the Federal Reserve's Sept. 24, 1996, open-market meeting.) Saving and capital investment are crucial to economic growth in a market-based system. Excessive credit expansion does not create true prosperity in the long run but can contribute to an asset bubble that takes years to unwind.
Heartland workers deserve answers to their legitimate concerns about the economy. President Bush listened and pursued the correct fiscal policy in response to the recession he inherited. If his critics are sincere they will spend more time formulating a mechanism for identifying future bubbles as they unfold, not attack the leader who cut taxes to stimulate growth.
Greg Kaza is executive director of the Arkansas Policy Foundation, an economic think tank founded in 1995 and based in Little Rock.