Bush upbeat, but joblessness is big problem

President Bush expressed confidence yesterday that the economic recovery is picking up steam, a development that could prove crucial to his re-election hopes.

Statistics released yesterday spotlight the challenge Bush and the economy face, however. Productivity grew remarkably in the second quarter, but new claims for unemployment benefits climbed to the highest level since the middle of July.


An economic boom that doesn't lower the 6.2 percent unemployment rate is considered a likely political loser.

Yesterday, however, Bush was upbeat as he spoke about the economy's prospects before the Greater Kansas City Chamber of Commerce.


"America's economy today is showing signs of promise," he told the audience in the 45-minute address. "We're emerging from a period of national economic challenge and economic uncertainty. Our economy is starting to grow again. Americans are feeling more confident."

Many economists agree that the nation is on the mend, and yesterday they were encouraged by two of three economic reports.

One, released by the Commerce Department, said orders for manufactured products jumped 1.6 percent in July, far surpassing economists' expectations of 0.8 percent growth. Demand for expensive "durable goods," such as cars, appliances and machinery, rose along with "nondurable" goods such as clothing, chemicals and food, according to the report.

In addition, productivity among the nation's workers - the amount a worker produces every hour - climbed to an annual rate of 6.8 percent in the second quarter, well above the 5.7 percent rate of growth the government had projected, according to a Labor Department report.

The numbers followed last week's revelation that the economy grew at 3.1 percent in the second quarter, a much stronger performance than predicted.

"I think we are rolling ... now," said Kenneth Mayland, an economist at ClearView Economics in Pepper Pike, Ohio. "The economy is growing very strong."

"We are in the process of accelerating at an above-trend growth pace," added James E. Glassman, senior U.S. economist at J.P. Morgan Chase & Co. in New York. "I think we are going to be quite impressed by what unfolds. It isn't going to be long before companies start to hire."

But the third - and somewhat troubling - report, also released yesterday by the Labor Department, showed that new applications for jobless benefits grew by 15,000 to 413,000 in the workweek ending Aug. 30.


Mayland blamed the increase partly on last month's energy blackout, which could have prevented some people from filing benefit claims in earlier weeks. He expects the "jobless recovery" to end by December as companies start hiring to keep up with demand.

"I am pretty certain that we are going to see significant job growth by the end of the year," Mayland said.

Others aren't so sure that companies will rush to add workers to their payrolls anytime soon.

"You do not have rapid growth or significant growth in the job market yet," said Gail Fosler, chief economist at the Conference Board, the New York-based research group that tracks consumer confidence. "The job market has just not kicked in. I wouldn't expect to see significant job growth until after the first of the year."

She expects unemployment to hover at about 6 percent by the end of the year, then, as the economy improves, fall to about 5.5 percent by the end of next year.

John E. Silvia, chief economist at Wachovia Corp., a Charlotte, N.C.-based banking company, expects companies to eventually start hiring, but not as they did in the past.


He said companies realized during the recession that they could get by with fewer workers. Also, more goods are being imported, which could mean a continued decline in the number of manufacturing jobs.

"I think there has really been a structural change in the U.S. economy," Silvia said. "You are getting the demand, but a lot of people are going to Target and Wal-Mart and buying goods made in China and Asia."

Silvia said he is optimistic about the economy's prospects but doesn't know how workers will benefit.

"I just don't think you simply cut taxes and you ease monetary policy, and that is the only thing you need to do to get growth and prosperity and jobs," Silvia said.

Bush expressed concern yesterday about the lack of jobs being created. He said it is "hard to feel confidence if you're somebody looking for a job. People who have been hit hard in the manufacturing sector know what I'm talking about."

Bush said productivity gains are partly to blame for lagging employment.


"Our economy must grow faster than productivity increases to make sure that people can find a job," he said. "I'm interested in Americans going to work."

The president suggested a number of ways of generating employment, including increasing foreign trade, reducing red tape for small businesses, controlling health care costs and stabilizing energy prices.

Employment will be a key issue in next year's presidential election, economists said, and if problems persist and the unemployment rate doesn't budge, Bush's presidency could be in jeopardy.

"It is bad for him," said Charles W. McMillion, chief economist at MBG Information Services, a Washington-based business information analysis and forecasting firm. "The unemployment rate needs to start going down; jobs need to start being created. He [Bush] clearly will not have created net jobs by a year from November. He has got to be showing substantial progress."

McMillion said he expects the economy to add jobs, but slowly.

Economists said yesterday that they think Bush will win next year if the economy improves and the war on terrorism and the situation in Iraq go well.