QandO

August 31, 2004

Economically 2004 much like 1996
Posted by McQ

In 1996, Bill Clinton was running for reelection. Michael J. Mandel of Business Week notes that, economically, the US was very similar to where it is now:

Perhaps a better, and more informative, comparison is with 1996, the last time an incumbent President ran for reelection. Like this one, the election of 1996, which pitted Bill Clinton against Bob Dole, came several years into a recovery. And the 1996 campaign, like today's, was fought against a backdrop of middle-class anxiety over job cuts and outsourcing, at least in its early stages.

The good news for Bush: On many of the key variables that voters care about, the economy looks uncannily like it did in the summer of 1996, a year when the incumbent was reelected. July's unemployment rate was 5.5%, exactly what it was in July, 1996. Similarly, consumer inflation is running at 3%, the same as July, 1996. Consumer confidence, housing affordability, unemployment claims -- all are roughly at 1996 levels.

However, its not identical:

Some factors have improved considerably this time around: GDP growth, for one, is much stronger. In other areas the economy is worse off, particularly in the number of jobs created and the size of the budget deficit. Still, history suggests that unless the economy suddenly deteriorates, it may be difficult for John F. Kerry to convince voters -- outside of swing states that have suffered disproportionately from the loss of manufacturing jobs -- that Bush has mishandled economic policy.

And we've related the difficulties to be found with the statistics out on job creation. Depending on which survey you're inclined to trust, jobs can be lagging (BLS payroll) or doing quite well (Household Survey). Regardless of the economic good news, those without jobs are most likely going to be voting on the lack of jobs.

But here's an interesting point:

By the time Clinton was running again in 1996, the economy had come a long way, but the national mood was troubled. Voters still felt uneasy about layoffs and outsourcing, with far more insecurity about their jobs than they had in the 1980s. Real wages were only up 0.9% -- total -- since Clinton had first taken office.

In fact, in terms of 1996, jobs really don't look that bad in 2004:

And although jobs were being created -- more than 200,000 per month -- the jobless rate was barely inching down. In fact, going into the August, 1996, Republican National Convention in San Diego, 12 states actually had higher unemployment rates than a year earlier. By comparison, only one -- Rhode Island -- has a higher rate today than a year ago.

Interesting. And there's even more to the comparison:

Moreover, growth prospects did not look very bright at the time of the convention. In August, 1996, the government reported that productivity had risen only 0.7% over the previous year -- a number that has since been revised to 2.8%. Moreover, over Clinton's almost four years in office, a period of economic recovery, growth had averaged a tepid 2.5%, according to the data at that time. As a result, most economic forecasters expected only 2% or so growth over the next year, terrible by current standards.

Just like today, some parts of the country were doing better than others. In July, 1996, 10 states had a jobless rate at or above 6%, not much different from today's eight states. California, in particular, had unemployment over 7% in 1996, far worse than the 5% the state saw in 1989.

Also just like today, the mixed economic picture in 1996 was reflected in the data on consumer confidence from the Conference Board. In July, 1996, the consumer confidence index was 107, about where it is now. That was far below the previous peak of 121, reached in 1989.

Yet, as Mandel notes, Dole was unable to get any traction on the issue with voters. He further notes that "the Democrats were able to argue successfully that a 5.5% unemployment rate was a successful economic record". Of course, 5.5% is exactly the unemployment rate today. But the Democrats are hardly making the same argument this time.

So Mandel asks are there other differences which may help or hurt Bush when compared to Clinton?

Is there any reason to believe that Bush might be more vulnerable on the economy today than Clinton was? Perhaps. For one, Dole was not a very effective candidate, and he ran against one of the great campaigners of all time.

Agreed. But then, I don't believe John Kerry is doing much to impress anyone with his campaigning. And Bush seems to be a much better and more effective campaigner than Dole, his father, and frankly, Kerry. And then there was also the dying gasp of the attempted third party which impacted the right more than the left in 1996 (which is why the Dems are so desperate to get Nader to go away).

Another difference is the unemployment rate for college-educated workers, which stands at 2.7%, compared with 2.2% in 1996. While that may not seem high, it's enough to raise anxiety among the educated class, who face unprecedented threats from outsourcing.

True, if the numbers are true. But there are real indications that job creation has changed quite significantly over the time of 1996 to now. And it is entirely possible that the comparison isn't really valid. That in fact while these workers may not show up on the traditional stats of the payroll survey, they may very well be working in a contract or 1099 capacity in jobs of their own creation.

In addition, real wages are down over the past year, compared with a slight increase in 1996. The political import of that, however, depends on whether voters are more sensitive to recent events or to comparisons with four years earlier. Real wages are still up by 2.1% since Bush took office -- equal to the entire real wage gain from 1983 to 1996.

Again, debatable. As Jon pointed out recently, "total compensation" which is a more fair gauge of what workers are earning, is growing faster than it did in the '90s. But to be fair, its harder to sell "total compensation" than "higher wages".

Then there's the budget and trade deficits, which are far higher as a share of GDP than they were in 1996. These factors may hurt economic growth over the long haul, but it's hard to argue that they are holding the economy back in the short run.

And its hard to argue that many voters are going to pay much attention to this at this time. The economy as a local or personal issue is what is going to drive a voter one way or the other. While there is going to be some concern expressed about budget and trade deficits, those aren't everyday economic issues to which voters are most attuned.

The biggest imponderable is how the labor market does over the next few months. If job growth continues to stall, then Kerry will have a potent economic issue. But a pickup in the labor market will make this look even more like 1996 -- and we know who won that one.

Actually if it continues to grow, it will be better than 1996 in terms of the unemployment rate. And if that's the case then it will be an issue that Kerry will have great difficulty selling (and it should be a comparison the Republicans hammer on the campaign trail).

We'll have to see how it goes.

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