Surprise Jack Welch Missed Shows Better U.S. Growth
It isn’t only the federal government’s Bureau of Labor Statistics that is issuing surprisingly good news about the U.S. economy these days.
If former General Electric Co. Chief Executive Officer Jack Welch’s charges of a political fix to manipulate economic data ahead of the presidential election are true, there must be a vast econometric conspiracy embracing auto dealers, real estate agents, the Federal Reserve and corporate America’s 96-year-old Conference Board.
The economy is improving more than professional forecasters anticipated, particularly in data on employment and housing, according to the Bloomberg Economic Surprise Index, which compares 38 indicators with analysts’ predictions. The index, based on gauges compiled by private businesses and trade groups in addition to government, confirms U.S. growth is generating jobs in the face of a global slowdown and looming federal spending cuts and tax increases known as the fiscal cliff.
“The economy is improving, and the labor market is getting better,” said Robert Brusca, president of Fact & Opinion Economics and a former New York Fed economist. “These numbers are what they are, they’re not being slanted. On a scale of one to 10, the economy is at a fairly firm six and may be heading higher.”
President Barack Obama and Republican presidential candidate Mitt Romney are each trying to convince voters ahead of the Nov. 6 election that they are best equipped to spur growth and accelerate hiring. Nonpartisan forecasters who have developed models to predict the outcome of elections disagree on how the economy will shape the results this time.
An Oct. 5 report from the BLS showed the jobless rate fell in September to 7.8 percent, the lowest since Obama took office in January 2009, from 8.1 percent in August. The rate was forecast to rise to 8.2 percent, according to the median estimate in a Bloomberg survey of 88 economists.
“Unbelievable jobs numbers. . . these Chicago guys will do anything. . . can’t debate so change numbers,” Welch wrote in a Twitter message immediately after the report. Obama’s campaign is based in Chicago.
The BLS data also showed that employers added 114,000 workers to payrolls last month after a revised 142,000 gain in August. The September figure was in line with economists’ estimates for an increase of 115,000.
Gallup’s daily tracking of likely voters conducted Oct. 4 through Oct. 10 shows Obama with 47 percent and Romney with 48 percent support. The tracking is a rolling average of seven days of surveys with a margin of error of 2 percentage points.
The Bloomberg Economic Surprise Index, which compares indicators with analysts’ predictions, shows a growing number of those measures are exceeding expectations. The index climbed to minus 0.06 yesterday from this year’s low of minus 0.42 at the end of July.
The Citigroup Economic Surprise Index shows a more pronounced improvement. It jumped to 49.4 yesterday from this year’s low of minus 65.3 on July 19. A positive reading suggests the economic releases have on balance been better than the Bloomberg consensus.
Among the indicators that have topped analysts’ forecasts: consumer confidence, car sales and purchases of existing homes.
Sales of previously owned houses, reported by the National Association of Realtors, rose 7.8 percent in August to a two- year high. Cars sold at a 14.9 million annual rate in September, the fastest pace since 2008, according to Ward’s Automotive Group.
“The economy is doing better than people think,” said Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York. “Don’t count the consumer out yet.”
Among the headwinds to growth, Rupkey said, are the European debt crisis, a slowdown in China and the so-called fiscal cliff, more than $600 billion of tax increases and spending cuts that will take effect early next year unless Congress acts to forestall them.
Americans are hearing less negative news about the economy, according to a survey by the Washington-based Pew Research Center for the People & the Press conducted Oct. 4-7.
Of 1,006 adults surveyed, the share of people hearing mostly bad news fell to 28 percent this month from 35 percent in September. The percentage hearing mostly bad news about the labor market fell 10 points to 42 percent. Most of the interviews were conducted after the Oct. 5 jobs report.
Better-than-forecast economic news, along with stock-market gains, helps explain recent increases in consumer confidence.
The Thomson Reuters/University of Michigan preliminary index of consumer sentiment jumped in October to the highest level since September 2007, before the last recession began, a report yesterday showed. The index rose to 83.1 from 78.3 the prior month. The gauge was projected to fall to 78, according to the median forecast of 71 economists surveyed by Bloomberg News.
The Bloomberg Consumer Comfort Index registered minus 38.5 in the week ended Oct. 7, close to the prior week’s reading of minus 36.9, which was the highest in three months.
“Many of these other groups reporting the numbers aren’t necessarily in President Obama’s camp,” said Steve Jarding, a professor of public policy at Harvard University’s Kennedy School of Government in Cambridge, Massachusetts and a former Democratic consultant. “There’s no collusion out there. The realtors, the car dealers, their numbers aren’t trumped up.”
Welch, in a Wall Street Journal column this week, revisited his criticism of the jobs data.
“The coming election is too important to be decided on a number,” Welch wrote. “Especially when that number seems so wrong.”
“If I could write that tweet again, I would have added a few question marks at the end” in order to “make it clear I was raising a question,” he wrote. Still, he added, the dip in unemployment is “downright implausible.”
Since last September, the jobless rate has dropped 1.2 percentage points. The only election year in which unemployment fell more during the same period was Ronald Reagan’s 1984 re- election, according to the government’s records.
Election forecasters’ economic models differ on this year’s outcome. Moody’s Analytics says its model shows Obama winning with 303 electoral votes, while Ray Fair of Yale University in New Haven, Connecticut, says the race is simply “too close to call.”
At Emory University in Atlanta, Alan Abramowitz, a political science professor, has developed a model based on economic growth during the April-to-June quarter and presidential job approval in the Gallup Poll for the last three days of June. His model forecasts a 67 percent probability that Obama will be re-elected and projects a popular-vote victory margin of 1.2 percentage points.
Christopher Wlezien, a political science professor at Temple University in Philadelphia, said the direction of the economy is more important than any single number.
“This isn’t just one little piece of news, it’s a perception over time,” said Wlezien, co-author of the book “The Timeline of Presidential Elections.”
“This is a very close race,” he said. “We’re in a slightly good economy, so it’s a slight advantage for the president.”
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