The Economy Turned the Corner and Is Headed in the Wrong Direction

June 11, 2005
By Gene C. Gerard

Throughout the presidential campaign last fall, one of Mr. Bush’s favorite stump lines was “The economy has turned the corner.” Presumably, this was the best (and, no doubt, the simplest) line that Karl Rove and Karen Hughes could craft for the president to reassure the nation that our economic woes were behind us. However, various reports released recently, as well as a comprehensive survey of America’s concerns, suggests that if the economy did turn the corner, it’s made a u-turn.

On May 19, the Pew Research Center released the results of their national survey of the nation’s mood. The survey demonstrated that 65% of the country is dissatisfied with how Mr. Bush is handling the economy. Only one in three believe the national economy is in good shape. The percentage of Americans rating their own financial situation positively has declined from 51 percent, when the president was inaugurated in January, down to 44 percent. And only 18 percent of Americans believe economic conditions a year from now will be better than they are today.

There’s plenty for people to feel glum about. The construction of new housing plummeted in March by 18 percent, the largest decline in housing starts in fourteen years. In April, the Commerce Department estimated the gross domestic product grew at an annual rate of 3.1 percent for the first quarter of the year. This was the slowest pace of growth since the first quarter of 2003. And consumer confidence declined for the third month in a row, down to its lowest point since last fall.

The Pew survey revealed that the portion of Americans who say it’s difficult to find jobs in their community is 60 percent. A year ago it was 55 percent. The most recent labor reports reflect the reality of the job market. Last week, the Labor Department announced that employers added only 78,000 jobs in May. This was the smallest monthly jobs growth since August 2003. Ashraf Laidi, the chief analyst for MG Financial Group, warned, “Today’s disappointing labor report supports the notion that the emerging soft patch in the U.S. economy is here to stay.”

Another report revealed that employers cut 82,283 jobs in May, an increase of 42 percent from April. It was an overall increase of 12 percent from the same time last year. Most of the job cuts occurred as a result of outsourcing jobs overseas. According to Forrester Research, as many as 3.3 million jobs could be outsourced by 2015. Last year, the chairman of President Bush’s Council of Economic Advisors, N. Gregory Mankiw, informed the president, “Outsourcing is just a new way of doing international trade. More things are tradable than were tradable in the past. And that’s a good thing.” American factories cut 7,000 jobs in May. In fact, factories have cut employment in eight of the last nine months, totaling a net loss of 67,000 jobs. And General Motors just announced it will cut 25,000 jobs by 2008.

Duke University interviewed the chief financial officers of the nation’s largest companies last month, and most of them said that they expect to higher fewer workers over the next year. And the Bureau of Labor Statistics recently issued a report noting that overall wages fell by 0.5 percent last year. The report indicated that for 95% of the work force, wages declined or were flat for 2004. That’s a bit ironic, given that corporate profits soared last year.

In the Pew poll, the price of gasoline was the public’s leading economic concern. Eighty-five percent of Americans ranked gasoline prices as a significant problem for the nation’s economy. That’s not surprising, considering how gasoline prices have escalated under President Bush. When he took office in 2001, gasoline averaged $1.46 per gallon. By the time of his inauguration this year, gas had risen to $1.84 per gallon, on average. As of last month, a gallon of gas averaged $2.16 per gallon. Since President Bush was elected in 2001, gasoline prices have risen by 48 percent, while the nation’s three largest oil corporations have earned a total of $33.6 billion in profits.

According to the Pew Research Center, there has been a significant increase in the number of Americans who rank health care or the high cost of health insurance as the largest problem they and their families face. In 2003, it was four percent. It is now 10 percent. In fact, this is the highest percentage of Americans who cite health care as their chief personal concern in 12 years. A report by the Kaiser Family Foundation on 2004 employer health benefits easily indicates why.

The report found that the percentage of workers receiving health coverage from them employer declined by 4 percent over the last year. Thirty-nine percent of all workers do not receive health insurance benefits from their employer. Since 2001, there are five million fewer jobs providing health insurance. For those who do receive employer-sponsored health insurance, premiums rose by 11.2 percent last year, which was more than five times the rate of inflation. This was the fourth consecutive year of double-digit increases in premiums.

The Kaiser report indicated that 41 percent of employers are likely to increase the percentage of the family premium that employees must pay in the next two years. Since President Bush took office, premiums for family coverage have increased by 59 percent. Copayments for physician office visits increased by eight percent in 2004. And the average drug copayments went up approximately 10 percent last year.

In January, at the time of President Bush’s inauguration, 60 percent of the country said the economy was in fair or poor shape. Last month, it increased to 67 percent. Clearly, many Americans believe that if the economy turned the corner, it’s going the wrong way. And for good reasons.