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November 08, 2004
Getting back to work
The perception of the economy has changed dramatically over the last few weeks. Not too long ago, many people thought the U.S. was on the verge of depression. The prospect of deflation had people on edge. Several automakers were rumored to be on the verge of bankruptcy. The U.S. economy was stuck in an apparently jobless recovery, as outsourcing, downsizing and bankruptcy ate away at corporate life.
A few executives and economists perceived an underlying strength in the economy, though. During the summer of 2003 I asked Verizon CEO Ivan Seidenberg if he thought the economy would emerge from its doldrums and give business spending a kick. His response:
"It's got to. Whatever your opinion about tax cuts and all that stuff is, forget about it. The simple fact is that all the money that has been pumped into the market during the last two-and-a-half years has got to come out the other end some time. It's got to. The low interest rates. The tax cuts. It's there. It's going to happen.
"At some point, businesses that are sitting on cash will start to spend. We'll see a sea change. One of the things about American industry that's pretty cool is that almost all the blue-chip companies have cleaned up their balance sheets. A lot of companies are poised for extraordinary success as the market picks up. But until the market changes, we have to hunker down and stay disciplined."
It appears that this long-awaited upturn in business confidence and spending has finally arrived. On Friday, the Labor Department stunned the markets by reporting that job growth for the month of October was twice as strong as expected. Newly released jobs figures for September and August show that labor market was been stronger than most people realized for quite some time.
The numbers help explain why Bush won. The Kerry campaign's gloomy assessment of the economy just didn't ring true for the majority of voters. There are still pockets of economic weakness throughout the country, especially in parts of Ohio and Pennsylvania. But it retrospect, it appears that one of the driving themes of the Democrat's campaign for the White House--the weakness of the economy--wasn't quite right. The terrible job losses of the last few years were real enough. But the economy's recovery was further along than most experts realized. Part of the problem is that government's economic data crunching bureacracy needs better funding, and a methodological modernization. Another part of the problem: It was an election year, and the unhappy picture that emerged from the data was just what a lot of folks wanted to hear. The message of economic weakness was an obvious campaign tool for Democrats trying to unseat a war time President, and they used it to great effect. It was tough for the Republicans to respond, because at the time, the data was on the Democrats' side.
If job growth continues at a faster pace, it's a good bet that tax revenues will rise as more people go back to work. That should help bring the deficit, the economy's second great vulnerability, under control. In fact, the deficit forecasts have been falling for some time. Let's hope the economy is really taking off this time.
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