1. Archive

Jobs slump threatens Bush's re-election bid

Published Sep. 1, 2005

For George W. Bush, the race has begun to escape comparisons to Herbert Hoover.

With more than 2-million jobs having disappeared since Bush took office in January 2001, he finds himself in danger of becoming the first president since Hoover to oversee a decline in the country's employment. Economists disagree on how much blame, if any, Bush deserves for the long slump, but even White House aides view the economy as one of the few big threats to his re-election campaign.

Now a turning point could be approaching. The Labor Department will release its jobs report for June this morning, and some forecasters are predicting that it will mark the beginning of the rebound. An increase in the nation's payrolls _ the odds of which are roughly even, Wall Street economists say _ would be the first since January.

Then the real test for the Bush administration will start. Bush has called the recently passed tax cut the main reason for economic optimism, and it took effect Tuesday, when withholding taxes changed for millions of workers. As if working from a script, administration officials have repeatedly referred to the new law as the "jobs and growth plan," part of its official name, to emphasize its goal.

"Listen, I'm interested in one thing," the president said during a rally last month in Fridley, Minn., to promote the tax cut. "I'm interested in helping people find work."

According to the White House's forecast, the increased consumer spending and business investment caused by the tax cut, combined with the economy's underlying growth, will easily push Bush's jobs record into positive numbers. Even if the economy merely adds jobs at the average rate of the last 50 years, he will rank roughly in the middle of modern Republican presidents, who have held office during weaker periods of job growth than Democrats.

But the length of the economic slowdown has surprised almost all economists, and some have begun to say that there is a significant chance that the economy will not erase its jobs deficit by the end of 2004.

Among the nation's three best-known forecasting firms, puts the chance at about 33 percent, Global Insight at 25 percent and Macroeconomic Advisers at about 20 percent. Employment gains would have to average about 120,000 a month for the nation's work force to return to its January 2001 size by the end of next year.

The difference between positive and negative numbers is somewhat arbitrary, of course. But statistics are likely to play a central role in the speeches of the 2004 campaign, political strategists and economists say.

Nancy Pelosi, the House Democratic leader, has begun summarizing Bush's economic record as "$3-trillion deeper in debt, 3-million fewer jobs." (While private-sector payrolls have fallen by more than 3-million, the overall decline has been 2.4-million because of government hiring.)

Democratic presidential candidates have made a habit of mentioning job losses during Bush's term. And the Economic Policy Institute, a liberal research group financed by unions and foundations, plans to grade Bush each month on how well the job market lives up to the White House forecast.

The tax cut "was presented as if it were a jobs plan," said Lawrence Mishel, the group's president. "It should be judged as such."

Republicans largely agree.

"There's no reason why we should be satisfied with 6 percent unemployment," said N. Gregory Mankiw, chairman of the White House Council of Economics Advisers. He added that the jobless rate was underestimating the economy's current plight but that the tax cut was likely to help cause unemployment to begin falling by the end of this year.

The $350-billion, 10-year plan reduces taxes on all households that make enough money to pay income taxes, among other measures. The benefits go mainly to high-income families, who pay the most taxes.

Still, Mankiw said that this summer, when the White House releases its next official forecast, it will probably reduce predicted job growth over the next year and a half, down from the 5.5-million it forecast early this year. Economic growth has been slower during the past few months than officials expected, and companies typically hire new workers only after executives are convinced that a healthy recovery has taken hold.

Administration officials have attributed the economic torpor to the 1990s bubble in stock prices and business investment, the accounting scandals in corporate America, and the uncertainty caused by wars in Iraq and Afghanistan. Outside economists overwhelmingly agree that the hiring slump, which is the worst in 20 years and the longest since before World War II, is not chiefly Bush's fault.

"He was unlucky," said John H. Makin, a resident scholar at the American Enterprise Institute, a conservative research group in Washington. "And I would say I don't think the bubble was the fault of Democrats. People got overexcited. It just started to unravel in the fall of 2000."

The main argument is whether Bush has done all he could to mitigate the slowdown.

His aides say that without the three tax cuts passed since 2001, the jobs decline would have been even worse. By reducing taxes on capital gains and dividends, the latest bill will also increase investment, encouraging companies to expand, the aides add.

Many Democrats argue that there are more effective ways to stimulate the economy than tax cuts focused on the wealthy. They have suggested sending money to state governments, which are now cutting programs to close budget deficits, and giving larger tax cuts to middle-class and poor families.

Similar measures are one reason _ along with chance _ that the six presidents with the best records of job creation since 1933 are all Democrats, some people in the party say.

People from both parties agree, however, that Bush's re-election chances will be improved if his record falls somewhere between Gerald Ford's and Ronald Reagan's and well away from Hoover's.

Job hunters use the Detroit Public Library recently to work on their resumes. The percentage of Americans in the labor force hit a nine-year low this year, with more than 2-million jobs lost since President Bush took office.