Back to reality: Problems with economy are stubborn

By LOREN STEFFY
Houston Chronicle
Nov. 4, 2004

OK. Now what? The all-consuming fervor of the election is subsiding, leaving the president the thankless task of wrestling with the same uncooperative economy that dogged him throughout his first term.

Things that ought to have worked aren't, at least not to the degree they were supposed to.

John Kerry, of course, wanted us to believe that the lackluster economy was George Bush's fault, but the problem is more fundamental. It traces its roots back through Republican and Democratic administrations to changes in the economy born during the recession of the early 1990s.

This economy grows, productivity rises, companies make money, but jobs are not added. Members of the Standard & Poor's 500 Index — Ford, Sears and Dow Chemical among them — trimmed their combined employment by 200,000 people at the end of last year compared with two years earlier, Bloomberg News reported this week. Those same companies are forecast to report a 19 percent rise in profit this year.

Closer to home, we see the same thing. ConocoPhillips, the biggest company in Houston, cut employment by 32 percent last year while reporting a record profit, according to Bloomberg.

Nationally, the average monthly employment gain during the past three years is 20,500 jobs, a fraction of the 116,000 jobs averaged in the three years after the recession of the early 1990s, Bloomberg reported, citing data from Merrill Lynch.

Locally, demand is picking up slightly among light industry and technology companies, says Steve Drexel, chief executive of Corestaff Services, who analyzes job market conditions. Admin- istration and professional services remain weak, he says.

"There's improvement, but it's not robust," Drexel says.

It was supposed to be. The president's advisers forecast in February 2002 that 6 million jobs would be added by June of this year. The numbers went the other way. In the past year, they've come back, adding the 1.9 million Bush referred to during the campaign, but they remain more than 800,000 below where they were when he took office.

"We're halfway back, but we're not all the way back," Drexel says.

Interest rates are at 40-year lows, inflation remains below 3 percent and Bush already has used $1.7 trillion in tax cuts to kick-start the economy. And it got us only halfway back.

This economy plays by different rules.

With the deficit ballooning over $400 billion and Bush's pledge to cut it in half in five years, the traditional recession-fighting arsenal is looking a little sparse.

The outlook, while not bleak, isn't rosy, either. Consumer confidence has fallen for the past three months. Oil prices continue to bounce around record highs, siphoning off cash that companies might use for hiring.

Soaring health care costs, too, are affecting the job market. Many companies are slow to add workers because the cost of providing benefits is soaring. Ford now estimates that $1,000 from the price of every new car now goes to cover worker benefits.

Another clue to the muted recovery is productivity. The output of U.S. workers has risen faster in the past two years than at any time since World War II. In other words, companies are doing more work with fewer workers.

As a result, businesses aren't hiring back all the people they laid off when the recession started. (Productivity slowed in the third quarter, which some economists say could indicate hiring will pick up.)

And keep in mind that the number of manufacturing jobs, once the linchpin of U.S. employment, has been falling for three decades. Manufacturing now accounts for less than 13 percent of our economy, compared with 24 percent in 1970.

What's more, technology for managing inventories has improved to the point that many companies have been able to manage their business cycles with more finesse. The recession was milder because companies could spot slack demand and keep inventories from piling up. Now they're greeting rising demand with more measured output, some economists believe.

Drexel says perception drives much of our frustration. We didn't just go through a recession in 2000; it was a recession that followed a rip-roaring expansion, in which ordinary workers made piles of money in the stock market.

Those boom times are gone and may never return.

"People aren't getting rich outside of their salaries like they were in the '90s," he says.

The bust also trounced more white-collar jobs than previous slumps, and while many of those displaced workers have found jobs, they may not be happy with them.

"They're in a job, but not in the job they want," Drexel says.

After three years, it's clear all these factors have transformed our economy. We're facing a different kind of recovery — slower, more stubborn, immune to the solutions of the past.

Welcome back, Mr. President.

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