The greatest story never told

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Friday, November 02, 2007

The Girl’s Got Game

Larry Kudlow

Well, well, well … 166,000 new jobs. Twice the consensus view. Did somebody say Goldilocks? Did somebody say the greatest story never told?

U.S. businesses and entrepreneurs are in very good shape. These are the real job creators. And with low tax rates, low inflation, and low interest rates, the economic and stock market outlook looks extremely bullish. The economic bears continue to underestimate the strength of the consumer because they continue to underestimate the strength of business. Ultimately, it is business that creates jobs. And it is jobs that create income.

Here’s the key point: Outside the struggling financial and consumer discretionary sectors, the economy is firing on all cylinders. Economy-wide profits are up a smoldering 15 percent in the third quarter when you remove these two laggards. And in addition to today’s robust, expansionary jobs number, GDP blew away forecasts earlier this week, coming in a hair shy of 4 percent. (For the record, this represents the biggest back-to-back quarterly gain in four years.) This means healthy American businesses are generating jobs. Meanwhile, hardworking American workers are out there spending money, with real, disposable, after-tax, after-inflation income running around 4 percent — a big number.

In the October jobs report, average hourly wages for non-management workers increased 3.8 percent, well above inflation. These wage gains don’t come from home-equity lines. They come from strong job creation. This is the heart of the consumer story. The October jobs gain is the best in five months. Over the past year, 1.7 million new jobs have been created. The bulk of these, by the way, are coming from high-pay service jobs, including business and professional services, as well as education and health services.

Looking back over four years, from the middle of 2003 when President Bush’s tax cuts took effect, the economy has created 8.6 million new jobs. Presently, non-farm payrolls in the U.S. stand at 138.5 million, a new record high. The unemployment rate today is a low 4.7 percent. And total civilian employment stands at 146 million, just shy of the record high. In fact, when you look at the October jobs report, it appears that employment is speeding up, not slowing down.

Message to all you worrywarts out there: The U.S. economy remains strong. There is no recession ahead. Goldilocks rules.

11/02 12:58 PM

link

Growth:

Employment (unemployment rate):

Earnings (Average Hourly Earnings/Production Workers):

Retail Sales:

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Inflation (Consumer Price Index):

Average Federal Income Tax Rates:

source: Tax Foundation via Cato Institute via Greg Mankiw. As Cato's Chris Edwards observes, "The Bush tax cuts substantially reduced tax rates for people in every income group. Indeed, those at the bottom had the largest relative reductions in their tax rates"--a fact Democrats never acknowledge.

Federal Budget Balance:

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Sorry, but if the elections go as planned, and the Dems take control of the White House, look for the economy to hit the brakes. Rising taxes and expanding Gov't spending will most certainly drive the value of the dollar even further down and cap growth.

[otterinbham 0]

Well, I posted two different news items on this board on this very subject last week.

At the same time, remember that employment always trails economic health. For example, an economy emerging from an economic downturn may have to wait several months to see a corresponding increase in employment. Same thing for an economy that is hitting the kids.

The mortgage credit problem will not go away in the next couple of months. What's more, it is showing signs of spreading to other forms of lending.

As I have said before, the economy is how people feel about the economy. If banks, in a case of overreaction, really tighten up on lending guidelines for small business, etc., then the economy will slow down long before the Dems get the controls.

So, everybody needs to sit around and hope that Bernanke and the Federal Reserve do a pretty adroit job of managing the money supply. Because that, more than any fiscal policy by the Democrats or the Republicans, will determine the fate of the economy.