While all Americans hope that the very strong third quarter GDP growth numbers are a sign of better times for American workers and their families, there’s a long way to go before we know whether this will translate into the type of robust job growth and widespread income gains that benefit typical Americans that we saw in the 1990s.
Some of the reasons we should continue to keep a watchful eye to see whether such reports lead to strong job and income growth are as follows:
• Consumer confidence down 24 percent from recessionary levels: During the nine months of the recession, the Conference Board’s Consumer Confidence index averaged 106.6. It currently is at 81.1.
• Excess capacity virtually unchanged: In November 2001, the last month of the recession, industry was utilizing 75.1 percent of its capacity, down from an average of 82.7 percent in 2000. Currently, capacity utilization is at 74.8 percent.
• Business investment still down by 8 percent. Even after the strong growth in the third quarter, real nonresidential private fixed investment is down 7.9 percent from the last quarter of 2000.
• Private sector analysts predict slowing growth: “We are looking for the consumer to slow down in Q4 to something close to a 2 percent annual rate from 7 percent which even with some add from inventories will probably lead to fourth quarter growth of roughly 3 percent.” [Merrill Lynch, 10/17/03]
• Executives expect little expansion by their firms: 14 percent of CEOs expect to increase the pace of hiring in 2004. Half expect no change in capital spending, and 1/3 expect only modest growth. [Business Council survey, cited in the Wall Street Journal, 10/9/03]
• State fiscal conditions will be a drag on economic growth: “The overall fiscal impulse from the government sector is likely to turn restrictive in the second half of 2004. State and local governments will still be exerting fiscal restraint – probably around $20-$25 billion. In addition, the federal fiscal impulse will turn restrictive as the size of the tax cuts diminishes and defense spending levels out after increasing sharply… The net fiscal impulse from the government sector should swing abruptly to about -1.3% of GDP during the second half of 2004.” [Goldman Sachs, 8/22/03]
• Wage income is down: “Real wage and salary income declined by 1.2 percent between the start of the last recession (March 2001) and the most recent month of data (August 2003). That decline is the worst performance at this stage since the current series began in 1959. [Economic Policy Institute, 10/29/03]
In terms of policy, the economic growth of the third quarter does not change that the last three years have been the worst period of job loss since the Depression and have seen a fiscal policy that Nobel Prize winning economist George Akerlof has called “the worst policy in 200 years.”
• 3.2 million private sector jobs lost since President Bush took office: Even the one month of modest gains in September only made up for 2 percent of the job loss that had taken place. (See graph)
• A record deterioration in the fiscal situation: Former Republican Secretary of Commerce Peter G. Peterson points out that “in just 2 years there was a $10 trillion swing in the deficit outlook” over 10 years. [“Deficits and Dysfunction,” New York Times, June 8, 2003 6/8/03]
• Tax cuts could cost $550 billion in 2013 alone – 12 years after the current downturn. CBO estimates show that making the tax cuts permanent and ensuring the alternative minimum tax does not take away tax cuts from tens of millions of taxpayers would cost $553 billion in 2013, including interest.
• One of the worst bang-for-the-buck policies ever: According to Joint Committee on Taxation estimates of this year’s tax cuts, only 5-7 percent of the 2003-2013 total cost took place in 2003. In contrast, a Senate Democratic plan would have provided $125 billion of stimulus in 2003 and yet only had a long term cost of $187 billion, even without offsets, and a House Democratic plan would have provided $129 billion, or three-quarters of its cost, in the first two years.
• 12 million children left out: Indeed, the administration has refused to push for making the child credit provision in the 2003 tax cuts refundable, denying the benefit of the full tax cut to the families of 11.9 million children who could have benefited from them the most. [Center on Budget and Policy Priorities]
Gene Sperling, a Senior Fellow at the Center for American Progress, served as National Economic Advisor and Director of the National Economic Council in the Clinton administration.