Economy Key to Bush Reelection
Recent positive indicators said to obscure negative signs, such as slow growth rate
IF President Bush's reelection prospects hinge on how successfully the nation's economy emerges from recession, the next nine months will put his stewardship to the test.
Talking to reporters at a recent Monitor breakfast, the president's chief economic adviser gave a sober forecast of United States economic growth for 1992. Michael Boskin, chairman of the White House Council of Economic Advisers, asserts that the 2.2 percent growth rate he projects will register just enough economic activity to prevent the unemployment rate from rising.
American voters "tend to look at who's on watch. It's clear that the state of the economy is hurting the president in his popularity and his approval rating, and there's no doubt about that," Mr. Boskin says.
The University of Michigan Survey Research Center's recent poll of American consumers across the country shows that 50 percent of the respondents rate government economic policy as "poor."
In a damaging cycle, the ailing US economy has reflected plummeting consumer confidence over the past year and a half. A sharp reduction in consumer spending - which makes up a crucial two-thirds of economic activity - has hit the country hard.
Gail Fosler, chief economist of the New York-based Conference Board, draws a direct correlation between the president's low approval rating in polls and the Conference Board's abysmal consumer confidence index. "The message is the fundamental insecurity about the long-run job outlook. It won't improve soon," she says.
A reading of recent statistics would have some observers believe otherwise. Following a 2.1 percent increase in January, retail sales rose by 1.3 percent last month. The sagging real estate sector was propped up in February by a surprising 9.6 percent increase in the construction of new homes across the country. And, after three months of decline, the nation's factories, mines, and utilities posted a slight gain in February. Even Boskin is cautious about defining these gains as momentum; he wants to watc h the next few months.
"All these numbers come spewing out, and people get all excited with the news, whether it's good or bad," Ms. Fosler says. "But we keep getting mediocre growth rates, and that's because the majority of the economy is in the service sector, which is a real drag on growth." Services account for 70 percent of the nation's employment and 50 percent of its output. Cutbacks will continue to affect retailers, restaurants, banks, and insurers, to name several employers in the service category.
Fosler estimates: "There's a better than even chance that the growth rate will pick up to the point where Americans can feel it - with improved wages, for example. But we need a 3 percent growth rate before we see that dynamism." Even that optimistic growth estimate won't translate into more employment, she says. "Twenty-seven states are reporting budget gaps, and virtually all state governments have announced layoffs."
The corporate outlook appears gloomy, too. Raymond Worseck, chief economist of St. Louis-based A. G. Edwards & Sons Inc., says that "restructuring of the service sector is providing a major shock to the national psyche." Despite the leading economic indicators that point to an improvement in the economy, he says, it may be a long time before public confidence is restored.
"For decades it was a badge of honor for corporations to brag about the number of people they employed," says Mr. Worseck. "Now it seems to be the reverse as restructuring becomes the key word." The greatest casualty is confidence: "There is great unease [that] these ... Americans will be permanently unemployed."
Promises of economic change don't stimulate the economy or deliver psychological benefits to Americans worried about their future. "The terrain of the debate is so worn by arguments that people know don't work," says Fosler. "'No new taxes,' a $5,000 tax credit for new homeowners; the administration is even banking on the withholding change [a tax accounting innovation designed to provide more cash up front to Americans who draw a paycheck] to stimulate the economy."
Boskin defends the Bush administration's plan for economic revival.
Much of the White House's short-term plan to spur spending that covers the withholding tax, fast-forwarding government project funds to create jobs, the first-time home-buyers credit and short-term investment tax credit, has yet to win Congressional approval.
Many of the longer-term problems, such as a deteriorating educational system, a low savings rate, and insufficient capital to advance US industry's ability to compete with major trading partners are far tougher to tackle.
Worseck says Bush has yet to articulate a cogent plan. Without a dramatic improvement in the economy this year and the lack of focus on the country's economic future, "the conditions would seem right for the incumbent to lose," he says.