As President George W. Bush gears up for his reelection bid, is the economic glass half empty or half full? Certainly it's easy for political partisans to put either a negative or positive spin on the latest statistics. There are 1.1 million fewer jobs than there were at the beginning of 2001, when Bush took office. But gross domestic product growth is running at a 4.8% rate, productivity growth is strong, and compared with the long-term economic drag that most forecasters expected after the terrorist attacks and the stock market plunge, today's economic environment looks positively rosy.
Perhaps a better, and more informative, comparison is with 1996, the last time an incumbent President ran for reelection. Like this one, the election of 1996, which pitted Bill Clinton against Bob Dole, came several years into a recovery. And the 1996 campaign, like today's, was fought against a backdrop of middle-class anxiety over job cuts and outsourcing, at least in its early stages.
The good news for Bush: On many of the key variables that voters care about, the economy looks uncannily like it did in the summer of 1996, a year when the incumbent was reelected. July's unemployment rate was 5.5%, exactly what it was in July, 1996. Similarly, consumer inflation is running at 3%, the same as July, 1996. Consumer confidence, housing affordability, unemployment claims -- all are roughly at 1996 levels.
Which isn't to say that the economy is identical to where it was eight years ago, of course. Some factors have improved considerably this time around: GDP growth, for one, is much stronger. In other areas the economy is worse off, particularly in the number of jobs created and the size of the budget deficit. Still, history suggests that unless the economy suddenly deteriorates, it may be difficult for John F. Kerry to convince voters -- outside of swing states that have suffered disproportionately from the loss of manufacturing jobs -- that Bush has mishandled economic policy.
Some analysts have wondered whether Bush is doomed to repeat his father's defeat. But this is a much different situation from 1992, when Clinton ran against Bush Sr. under the slogan, "It's the economy, stupid!" In July, 1992, the unemployment rate was tallied at 7.7%, nearly a full percentage point higher than a year earlier. Against this backdrop, the incumbent had a tough case to make.
By the time Clinton was running again in 1996, the economy had come a long way, but the national mood was troubled. Voters still felt uneasy about layoffs and outsourcing, with far more insecurity about their jobs than they had in the 1980s. Real wages were only up 0.9% -- total -- since Clinton had first taken office.
And although jobs were being created -- more than 200,000 per month -- the jobless rate was barely inching down. In fact, going into the August, 1996, Republican National Convention in San Diego, 12 states actually had higher unemployment rates than a year earlier. By comparison, only one -- Rhode Island -- has a higher rate today than a year ago.
Moreover, growth prospects did not look very bright at the time of the convention. In August, 1996, the government reported that productivity had risen only 0.7% over the previous year -- a number that has since been revised to 2.8%. Moreover, over Clinton's almost four years in office, a period of economic recovery, growth had averaged a tepid 2.5%, according to the data at that time. As a result, most economic forecasters expected only 2% or so growth over the next year, terrible by current standards.
Just like today, some parts of the country were doing better than others. In July, 1996, 10 states had a jobless rate at or above 6%, not much different from today's eight states. California, in particular, had unemployment over 7% in 1996, far worse than the 5% the state saw in 1989.
Also just like today, the mixed economic picture in 1996 was reflected in the data on consumer confidence from the Conference Board. In July, 1996, the consumer confidence index was 107, about where it is now. That was far below the previous peak of 121, reached in 1989.
And yet, despite the concern about job losses and the sluggish economy, Dole was unable to get traction against Clinton. The Democrats were able to argue successfully that a 5.5% unemployment rate was a successful economic record.
Is there any reason to believe that Bush might be more vulnerable on the economy today than Clinton was? Perhaps. For one, Dole was not a very effective candidate, and he ran against one of the great campaigners of all time.
But there are real differences as well that could open up opportunities for Kerry. Clinton had the advantage of an economy that picked up speed going into the fall election season, as the tech boom started to take hold. Today, companies are reporting still-sluggish growth, though little solid data yet exist on August.
Another difference is the unemployment rate for college-educated workers, which stands at 2.7%, compared with 2.2% in 1996. While that may not seem high, it's enough to raise anxiety among the educated class, who face unprecedented threats from outsourcing.
In addition, real wages are down over the past year, compared with a slight increase in 1996. The political import of that, however, depends on whether voters are more sensitive to recent events or to comparisons with four years earlier. Real wages are still up by 2.1% since Bush took office -- equal to the entire real wage gain from 1983 to 1996.
Then there's the budget and trade deficits, which are far higher as a share of GDP than they were in 1996. These factors may hurt economic growth over the long haul, but it's hard to argue that they are holding the economy back in the short run.
The biggest imponderable is how the labor market does over the next few months. If job growth continues to stall, then Kerry will have a potent economic issue. But a pickup in the labor market will make this look even more like 1996 -- and we know who won that one.
By Michael J. Mandel