Kudlow’s Money Politics

More Than Half Full

You can’t win with the economic pessimists.

The cult of the bear reigns supreme on Wall Street these days, as those who want to tear down the economy continue manufacturing reasons to justify their declinist philosophy. If jobs reports come in above expectations, naysayers predict inflation. If reports come in below, they predict recession.

So, today’s 75,000 increase in non-farm payrolls was greeted derisively, despite the fact that over the past 33 consecutive months, 5.3 million new jobs have been created. Over the year ending in May, 1.9 million new jobs have been created and the unemployment rate moved down to 4.6 percent, the lowest in nearly five years’”below the average jobless rate of the last 45 years.

But wait, there’s even more: the household survey, which focuses on self-employed owner-operators of new entrepreneurial businesses showed a booming May jobs report of 288,000. I have not heard a peep anywhere about this.

In fact, all this year, the entrepreneurial household sector has produced 1.2 million new jobs (including 326 thousand self-employed) compared to only 730,000 from the corporate establishment payroll survey.

Historically, when a big spread opens up between these two series, it is the payroll survey that gets revised upward, or that catches up in future months. This was particularly the case in 2003 and 2004, when Democrats who proclaimed a jobless recovery had to eat crow.

Studies done by the Labor Department acknowledge the importance of the household survey, which is where the unemployment rate is derived. Economists at the Bureau of Labor Statistics have offered a ’split the difference’ rule of thumb to reconcile the two surveys. Using that approach, you get 964,000 new jobs year-to-date, or 193,000 per month.

The economy is so strong that more and more people are still entering the labor force to get jobs. The civilian labor force has expanded by 838 thousand this year. Meanwhile, those not in the labor force but who want to work is up 400 thousand. Discouraged workers are down 128 thousand.

Right now, total employment in the U.S. stands at a record high of 144 million. This is a big number, just as 4.6 percent unemployment is a low number. In fact, the number of unemployed has dropped by 2.2 milllion since the mid-2003 peak and by 400 thousand this year.

Over the past three years alone, real GDP in the U.S. has been averaging 4 percent annually. After tax business profits, the mother’s milk of business and the stock market are at a record high. And, despite rising gas prices, consumers are still spending according to the May report or comparable same store retail sales. (‘Consumers Shop with Enthusiasm in May’ according to the AP. Here’s a second one ‘Retailers Report Solid May Sales as Department Stores Stand Out’ from the Wall Street Journal)

Consumers are spending because jobs are rising and incomes are expanding. Average hourly earnings in the May jobs report are running 3.7 percent above a year ago; while average weekly earnings are growing at 4 percent. Both are running well ahead of inflation, even including the gas spike.

Most important, the workforce is earning their salary gains through record productivity. Non-financial business output per hour is rising at 3.7 percent which means that productivity adjusted labor costs are actually falling by nearly one percent per annum.

In other words, the workforce is getting raises that do not interfere with business profitability. And, record low tax rates on capital formation point to a continuation of this highly favorable economic scenario for years to come.

You know what? The real economic truth is that it doesn’t get much better than this.

Put politics aside, leave the Bush-bashing alone for just a moment, and a thorough examination of all the economic statistics plainly shows that in fact, we’ve never had it so good. This is a long-playing story that goes back to the Reagan revolution 25 years ago which reformed resurrected and streamlined the free market entrepreneurial capitalism system in America. Nitpickers and ankle-biters will always see the economic glass as much less than half empty.

I continue to view it as much more than half-full.

Larry Kudlow is the author of JFK and the Reagan Revolution: A Secret History of American Prosperity, written with Brian Domitrovic.

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