ECONOMY
IS AS UNCERTAIN AS THE PRESIDENCY
BY
JULIANNE MALVEAUX
|
Whoever is declared President of the United States has a rude
awakening waiting for him when he takes office on January 20. Either
George W. Bush or Al Gore must know, by now, that the economy he
campaigned on is not the economy he will preside over. While both have
been bickering about how to spend the surplus and manage economic
expansions, the indicators suggest that the economy is a lot weaker
than it was this summer in the heat of the campaign. Revised estimates
of third quarter growth indicate that GDP growth is lower than it has
been for years, growing 2.4 percent, not 2.7 percent as originally
projected.
That’s not all. Incomes fell for the first time in nearly two years, while spending continued to increase Maybe that is good news for the retailers who rely on consumer spending for their profits, but the news that incomes are dropping (though by only 0.2 percent) suggests that workers aren’t doing as well as expected. Incomes have only risen in the last two years of our seven-year economic expansion. The turndown in incomes may be yet another sign of an economy that is preparing to slow down. Although consumers are spending, their confidence is dropping, now for the second month in a row. Consumer confidence is lower than it has been in 13 months, and while that hasn't shown up in post-Thanksgiving spending, it is showing up elsewhere. Retailers think that people will be spending less on durable goods, which are often seen as the backbone of spending. Orders for durable goods dropped by 5.5 percent in October, with much of the slowing coming in the automobile sector, where sales are way down from their peak. There’s more. The number of people applying for first-time unemployment benefits rose to 358,000 during the week ending November 25. This has been the highest level of first-time jobless claims in more than two years, and was a level much higher than expected by business economists. Despite the talk of "soft labor market" layoffs continue at a brisk pace. One could factor the stock market into this, but the stock market has oscillated all year. NASDAQ’s tumble signals a weakness in technology stocks and in the entire dot com sector, which some believe has more flash than actual value. Too many companies have yet to show a profit despite hundreds of millions of dollars of investment. Others have folded, and still others have earnings that fall short of those promised. It has only been a matter of time before skeptical investors began to look askance at some of the technology hype, and the falling NASDAQ reflects that. But it also reflects a weakness in the economy. Some are hoping that when the Federal Reserve Board meets in December it will respond to economic weakness by lowering the interest rate, but most Fed Governors feel more strongly about managing inflation than maintaining growth. Thus, while the colorful metaphor of an economic "soft landing" is reassuring, there are those who think that falling growth is likely to be much less gentle. The man who would be President may have to modify his election-season promises to come up with a more realistic plan of managing the economy. Plans for tax cuts may have to be revised from the election-season promises. Mr. Gore’s targeted tax cut may not have the desired effect in an economic slowdown. Mr. Bush's tax cut for the wealthy, too, will hardly stimulate growth or generate desired consumer spending. Whoever leads the nation will have to revise his expectations about our economy, and alter his plans accordingly. Neither Mr. Bush nor Mr. Gore said much about poverty during the election, but the President will have to focus on poverty, especially if the economy continues to slow. The poor didn’t gain much from economic expansion, and a slowdown is likely to affect them first. Mr. Bush, with his attacks on "entitlement spending" may find that entitlements are necessary, especially if the women who were formerly on public assistance find themselves affected by a downturn. Mr. Gore, a proponent of welfare reform, may find himself regretting his earlier advocacy of draconian measure to remove the safety net from poor people. Little commentary focused on the possibility of an economic
slowdown in 2001. That may be one of the reasons why the election
results were so close – few felt that there were upcoming crises
that might require a certain level of experience to handle. Now the
direction of the economy is perhaps as uncertain as the winner of the
election. Too bad we didn’t have data on the coming slowdown a month
or so ago. |