The Wall Street Journal has a story today, authored by Bradley Schiller, arguing the presidential race is all but over. According to Mr. Schiller it ended on August 28, the day the Commerce Department revised its assessment of 2nd quarter GDP figures:
Rather
than growing at the anemic pace of 1.9% as reported in July, the
April-June quarter actually registered a healthy GDP growth rate of
3.3%. Growth at this rate exceeds the long-term U.S. growth rate of
3.1% over the past 50 years.
Even
though slow GDP growth has reduced payrolls and increased unemployment,
the two consecutive quarters of negative GDP growth that define a
recession simply have not occurred.
Which brings us back to Aug. 28 and a possible McCain victory. With the April-June quarter showing a strong GDP growth rate of 3.3%, Mr. McCain's chances are looking better and better.
Here's the problem with Mr. Schiller's argument; presidents are elected by voters. Voters who won't remember quarter to quarter GDP rates, but will have a sense about their own, and their neighbors, financial security. They won't remember that technically we're not in a recession, but they will have a sense about how the financial markets are performing.
Here's a chart of the Standard and Poor 500's performance since August 28th (the day the race ended, according to the Wall Street Journal)
Perhaps the Wall Street Journal should tell all those investors everything is actually rosy. So why has the market declined over the last week, given the big GDP numbers?
Same store retail sales numbers in August have continued to be sluggish and the markets are reacting to the understanding Americans are losing and curtailing purchasing power (the Dow Jones Industrial Average fell 340 points as the August numbers were coming in). The middle class doesn't care what the GDP is this quarter or last quarter. They do understand they have less disposable income than they had before and that creates anxiety leading to reduced spending. And the economy can't move forward when consumers aren't spending money.
Today the jobs numbers were released. Remember, the economy requires at least 125K jobs/month be added to just to keep up with population growth. 84,000 jobs were lost in August. More than 600,000 have been lost this year. August is the eighth consecutive month of job decline.
Most of us understood the economy was precarious, at best. But the Wall Street Journal and the Republican Party have tried for the last eight years to convince Americans, and particularly the middle class, the economy is in better shape than it actually is. They've touted a variety of metrics, from GDP to retail sales, but have failed to understandhow that growth was being born.
Robert Reich, ex-Secretary of Labor in the Clinton administration, wrote a recent article outlining the accomodations the middle class has made, attempting to keep up with this "new economy". Reich asserts middle class American families found themselves being pinched as long as thirty years ago. The first line of defense was to become a two income family. And that worked for a time. But as wages failed to keep up with inflation, many families were forced to work multiple jobs per person. And that worked for a time too. When that no longer allowed families to maintain their standard of living, what it was, many began to use credit (including using their homes as equity) to maintain a lifestyle. Reich asserts the country is up to its eyeballs in debt and there are no options left. And many just don't have money to spend anymore.
Wall Steet seems to understand that. Even if the Wall Street Journal and the Republican party don't.
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