President Bush delivered an upbeat report on the economy to Congress yesterday, declaring that his tax cuts have spurred steady growth, which he expects will create 2.6 million new jobs this year.
The buoyant forecast surprised economists who gave Bush credit for spurring an economic recovery but labeled as unlikely the creation of so many jobs this year.
"That would be quite a trick," said Anirban Basu, chairman and chief executive of Optimal Solutions Group LLC, a Baltimore economic consulting firm.
Other economists agree, saying they don't see corporations adding that many people to their payrolls this year. Only 112,000 jobs were created in January and just 366,000 since August.
The so-called jobless economic recovery is considered one of Bush's most significant political liabilities as he campaigns for re-election this fall. The economy has lost about 2.4 million jobs since Bush became president in January 2001.
Bush flew to Missouri yesterday to promote his economic achievements at SRC Automotive Inc., an auto parts and equipment company in Springfield.
"The [economic] growth is good," Bush told the audience. "New jobs are being created. Interest rates are low. Home ownership in America is at one of the highest levels ever, and that's positive. People are owning their own home."
He said his tax cuts have helped the average citizen put money in their pocketbooks, which has in turn stimulated the economy.
"It helps when those workers have got more money in their pocket," Bush said. "And it helps when the small business owners have got more money in their coffers. And that's what tax relief does."
But while the economy is showing signs of improvement, economists worry that the billions in tax relief will contribute to runaway federal spending and a soaring deficit could lead to rising inflation and higher interest rates.
"Basically, I see government spending out of control," said Sung Won Sohn, chief economist at Wells Fargo & Co. in Minneapolis. "In the long run, I guess I am very concerned. Deficits are going out of sight. Under certain assumptions ... we could be piling up $6 trillion in accumulated deficits through 2013."
Bush's speech to the autoworkers came as his 2004 economic report was being delivered to Congress. The 412-page report, which is prepared by his Council of Economic Advisers, underscored the gains made in the economy under Bush, who took over as the nation was slipping into recession.
"As 2004 begins, America's economy is strong and getting stronger," said the report. "We are moving in the right direction, but have more to do."
The administration, according to the report, expects the economy to grow at an average annual rate of 4 percent this year and the unemployment rate should slip to 5.5 percent by the fourth quarter.
"The economy could well grow faster ... as the long-run benefits from the full reductions in marginal tax rates are felt," the report said.
Not everyone agrees that the economy has fully mended and is poised for growth.
"I think the economy is in really bad shape," said Dean Baker, co-director at the Center for Economic and Policy Research, an independent economic think tank in Washington.
"I don't see the strength of the economy, even assuming the housing market holds up. I see very weak job growth for the rest of the year."
The report singled out Bush's tax cuts as a key instrument in reviving the economy. The tax cuts have injected hundreds of billions of dollars into the economy encouraging consumer and business spending and leading to greater productivity gains, the report said.
"I do think that when the history books are written the tax cuts ... will get more favorable reviews," said Gary D. Keith, regional economist at M&T; Bank in Buffalo, N.Y.
"The story of the last several years is consumer spending has maintained its strength. We saw home sales going great guns, we saw car sales going. That is the kind of stimulus needed in the downturn."
The report highlighted other accomplishments, particularly increased productivity among workers, who now enjoy a higher of standard of living.
"The recent robust gains in productivity have boosted both corporate profits and employees' compensation," the report said.
"Moreover, productivity growth has reduced inflationary pressures by holding down growth in unit labor costs. As a result, wage gains after adjusting for inflation have been even more impressive by historical standards."
Economists said Bush's tax cuts allowed businesses to buy new machinery and computers more cheaply and operate more efficiently.
"I think he has done quite a good job stimulating productivity," Basu said.
But John E. Silvia, chief economist at Wachovia Corp., said the productivity story is a two-edged sword.
People, he said, who have jobs are more productive and are better paid. But since companies are producing more with fewer people they haven't added workers.
"A lot of firms ... have just learned to be so much more effective in terms of productivity gains that they need fewer and fewer people," Silvia said. "I would say it is the revenge of the new economy."
The report noted that manufacturing has struggled while Bush has been president. It has been ravaged by foreign competition and advances in technology that have made some jobs obsolete.
Most of the job losses were due to a decline in U.S. production of computers, electronics, machinery and metals, the report said.
But the report stated that the manufacturing downturn is not out of line with past declines and it may be nearing an end.
"Although manufacturing employment fell throughout 2003, recent developments hint at improving employment conditions for the sector as a whole," the report said.
Economists said they don't blame Bush for the problems in the sector because he inherited most of them when he took office. Bush even placed tariffs on steel imports, which he recently removed, they noted.
"It's hard to attribute these manufacturing losses to the things he has done," Basu said.