Bad News on the Job Front

August 7, 2004

here is no sugarcoating yesterday's employment report. The consensus forecast was for the American economy to add more than 200,000 new jobs in July. The actual number was 32,000. June's already weak report was revised downward, to 78,000 jobs from 112,000. Even May's hopeful numbers turned out to be less so, with 27,000 fewer jobs created than originally reported. The report's immediate impact will be to neutralize, if not undercut, President Bush's campaign boasts of a strong economic recovery.

Mr. Bush runs the risk of being the first president since Herbert Hoover to preside over a net decline in the number of jobs. This may not be all his fault; he inherited a bursting bubble, after all, and there are limits to a president's ability to counter economic cycles. But Mr. Bush is always just as eager to have the buck stop at his desk to take credit for good economic news as he is to deny or spin bad news. Yesterday was no exception.

Addressing a conference of minority journalists in Washington, President Bush was unwilling to acknowledge the implications of the jobs report. "Economic growth is strong and it's getting stronger,'' he said. Meanwhile, the White House economic team was peddling its tired line that the administration's tax cuts, which were costly without being effective as a stimulus for hiring, had helped bring about an 11th consecutive month of job growth.

Left unsaid was that it was a sputtering, tepid month, just at the time when the recovery should be gathering steam. The disappointing numbers come on top of - and help explain - other recent signs of a slowdown, including an abrupt drop in economic growth, to a 3 percent annual rate in the second quarter from 4.5 percent in this year's first quarter. Consumer spending, the mainstay of the economy, fell 0.7 percent in June, its steepest drop since September 2001. Financial markets reacted bearishly to the latest news, with stock market indexes hitting new lows for the year yesterday, and the dollar weakening against other currencies.

Even worse for the president, three years of tax cuts and war have left him with virtually no policy tools to counteract economic weakness in the near term. A direct fiscal stimulus is precluded by the staggering $445 billion deficit expected for the year. The White House tried to whitewash the release of that latest estimate last week by noting that the shortfall was lower than its initial (conveniently large) projection, instead of lamenting that it was higher than last year's deficit.

The Federal Reserve Board is also unable to come to the rescue because it is rightly concerned about the danger of keeping short-term interest rates below the rate of inflation. Next week, Alan Greenspan and his colleagues are expected to continue on their course of gradually inching up rates, which have been at emergency-level lows. This may turn into a sequel of the 1992 tensions between the Fed chairman and a Bush White House that wants looser monetary policy on the eve of an election.

Most economic forecasts have predicted a healthy economy in the second half of the year, and consumer surveys have been bullish, even as people have trimmed their spending. The trouble is, companies will have to start adding at least 200,000 new jobs a month to justify this optimism, especially now that the government's ability to apply a fiscal or monetary stimulus is so constrained. Those stubbornly high fuel prices show how external shocks can slam the brakes on the pace of this recovery.

Voters deserve to have both presidential candidates address and debate solutions to some of the structural problems that are thwarting a stronger economic recovery, like our nation's dependence on foreign oil and the spiraling cost of health care. But like the rosy estimate of hundreds of thousands of new jobs for July, such a meaningful debate may be too much to count on.