American Unemployment and Elections

Concluding a sensational convention in New York with a speech that emphasized unflinching strength, President Bush got more good news this morning. The Labor Department announced that the unemployment rate had dropped to 5.4 percent — the lowest proportion of Americans out of work in three years.

By comparison, the unemployment rate in 1996, when Bill Clinton was running for a second term was higher — at 5.5 percent. The new U.S. unemployment rate is about half that of France and Germany.

The unemployment rate today is lower than the average during the 1990s, during the 1980s and during the 1970s.

Usually, in an election, it’s the unemployment rate that has the most influence on voters, but, this time around, the media have been emphasizing a different number: job gains. Why? Well, most likely because those gains, in June and July, were anemic, embarrassing the president — the guy whom the vast majority of journalists want to lose.

Month-to-month job gains, as reported by the statisticians, are practically meaningless. They are drastically adjusted for seasonality, and they are based on small samples. They pose as precise figures, written in a thin-point pen, but they are actually crude numbers, written in crayon.

Employment stats certainly mean something in the long term (when you add them up), but, in the short term, unemployment figures — which are not free of their own drawbacks — are more meaningful.

This is not an excuse for the president. In fact, the Labor Department announced that August payrolls rose 144,000 — a good, solid increase, in line with estimates. Also, the jobs gain for July was revised upward, more than doubling to 73,000. Manufacturing employment in August increased by an admirable 22,000. Average hourly wages rose 0.3 percent.

Overall, the United States has added nearly 1.5 million new jobs since January. At that pace, about 2.5 million new jobs should be added by the end of the year. Already, more Americans are working today than ever in our history.

But, frankly, it’s not good enough. As the website Economy.com put it, “This was a strong report, especially when revisions are taken into consideration. But it is not a stellar report.”

How can we do better? Certainly not by raising taxes, as John Kerry urges. Kerry’s tax increases would eliminate the bulk of the savings from the dividend and capital-gains cuts and would raise rates by more than 10 percent, not just on higher-income individuals but on the millions of small businesses that fuel the economy.

No, the best approach is the one outlined by President Bush last night: reform Social Security, which will increase savings and lower the cost of capital; simplify the Tax Code and make the tax cuts permanent to dampen risks for businesses and individual consumers and investors and boost spending and investment; and expand trade, both to lower the costs of goods coming into the U.S. and to make new markets for our own products.

This morning, in Moosic, Pa., the President responded to the nonsense being peddled by the Kerry campaign about our shipping jobs overseas. Bush said that, if we want to keep jobs at home and, in fact, add to them briskly, then, “This has got to be the best place in the world to do business.”

In one way, the U.S. already is. We have the world’s best consumer market — which is the main reason that Japanese automakers, for example, locate plants here. But we make few efforts — through tax cuts and other incentives — to attract foreign businesses and keep jobs at home. Why do semiconductor plants, for example, locate abroad? Not because of cheap labor, which represents barely 5 percent of the cost of running a fab. But, in large part, because countries like Taiwan and China offer terrific tax incentives.

The jobs report did, indeed, offer good news to the president — good enough, I would suspect, to defuse much of the talk about a lousy economy. (Americans themselves think they’re doing pretty well; surveys show that they consider the state of their personal finances above-average.)

But we can do better.