Features

A season to be jolly

National | ECONOMY: A string of economic reports suggests a rebound reminiscent of the early 1980s may be underway

Issue: "Daniel of the Year 2003," Dec. 13, 2003

IN THE MIDST OF A RECESSION, A popular first-term Republican president angers liberals by enacting sweeping tax cuts early in his term-and then later, as his race for reelection nears, the economy starts to pick up steam. That could either describe 1983 or, it's beginning to appear, 2003.

A slew of positive economic reports in the last few weeks, some of them the strongest since the Reagan recovery in 1983, has economists saying that the United States may be finally emerging from its economic doldrums:

The Labor Department reported last week that productivity-or the amount workers produce per hour-grew at an annual rate of 9.4 percent in the third quarter, the healthiest increase since the second quarter of 1983 when productivity rose at an annual rate of 9.7 percent.

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Moreover, productivity should continue to improve, since business investment rose at an annual rate of 14 percent in the third quarter. That included a large increase in spending on the equipment and software that allows workers to be more productive.

The Institute for Supply Management also reported a surge in manufacturing activity last month to the highest level since, again, 1983. ISM's index rose from 57 in October to 62.8 in November. The index had reached 69.9 in December 1983. Anything over 50 indicates expansion in manufacturing.

New jobless claims grew slightly in the last week of November, according to the Labor Department, but remained under 400,000-the level many economists consider the threshold of a healthy job market.

The economy as a whole is growing at a faster rate than expected. Just in time for Thanksgiving, the Commerce Department on Nov. 25 revised its initial estimate of third-quarter GDP growth from a hot 7.2 percent annual rate to a torrid 8.2 percent.

The spate of good news had practitioners of the dismal science sounding almost giddy. "I don't need much more proof that we're seeing a global economic recovery," Philippe Gijsels, chief equity strategist at MeesPierson, told the Bloomberg news service. "It's clear the tax cut succeeded in its initial endeavor, to stimulate profits and therefore business orders, and to establish momentum that would serve as a foundation for improving economic results," added Carl Tannenbaum of Chicago's LaSalle Bank.

The news also provided hope to retailers that their disappointing showing during the first weekend after Thanksgiving would not continue through the entire Christmas shopping season. Same-store retail sales were up 3.6 percent over last year, but that wasn't as high as some had expected.

Upscale chains, such as Saks, Neiman Marcus, and Nordstrom, had the strongest showings, as did Gap, Costco, and Target. Controversial retailer Abercrombie & Fitch, on the other hand, saw same-store sales decline 13 percent during the month of November. The clothing seller, whose catalogs often include models wearing little in the way of clothing, hasn't posted an increase in same-store sales since March 2002.

If President Bush's tax cuts contributed to the overall economic rebound, then the only real bad news last month came from Congress and the White House. Even as President Bush was taking credit for the strong economy, he was signing spending bills that will almost certainly translate into a much higher tax burden for future generations (see p. 28).

The Congressional Budget Office estimates, for instance, that the prescription drug benefit he and Congress added to Medicare last month will cost taxpayers $2 trillion in its second decade. "Long-term, the concerns are how are we going to finance it," John Newman, professor of health administration at Georgia State University, told USA Today. "We'll probably figure out a way."

Timothy Lamer
Timothy Lamer

Tim is managing editor of WORLD magazine.

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