Voter Take-Home Pay Crucial To Bush's Reelection In '04

Voter Take-Home Pay Is Crucial To Bush's Reelection Bid In '04
BY BRIAN MITCHELL
INVESTOR'S BUSINESS DAILY - 9/6/03

The U.S. recovery seems to be picking up steam. That should be good news for President Bush as he heads into next year's election.

But what about the voters? How are the people who will decide Bush's fate doing moneywise?

Much better at the moment due to recent tax rebates and cuts. Disposable income surged in July.

If the economy can keep incomes growing, Bush should do well in next year's election.

But job losses put that at risk. Friday's jobs report showed employment fell by another 93,000 in August. If that doesn't stop, Bush could be in big trouble.

The number to watch is real disposable income per capita. That's take-home pay adjusted for inflation and averaged among the nation's 290 million residents.

(see graph) http://www.investors.com/editorial/general.asp?v=9/6

RDI per capita is the best single economic predictor of presidential elections, says Larry Bartels, a professor of politics and public affairs at Princeton University.

"It's closer to everyday people's ordinary experience," said Bartels. "It's a measure of what they actually have in their pockets, rather than an abstract economic indicator."

In 2001, Bartels and a colleague tested 48 economic models for predicting presidential elections and found models that relied mostly on RDI per capita performed best.

Pocketbook Voting

Just twice since 1948 has the party in the White House won a popular majority for president when the RDI per capita grew less than 2% in the election year.

Four times since 1948, the party in the White House lost the popular vote when RDI per capita grew less than 2%.

Shrinking wallets help explain the Bush-Gore squeaker in 2000.

Many analysts ?- Bartels' included ?- expected Al Gore to win easily on the strength of the economy. GDP expanded 3.8% in 2000. Unemployment averaged just 4%.

RDI per capita actually rose a strong 3.6%. But that was due to big gains early in the year, fueled indirectly by the peaking stock market. By Election Day, RDI per capita was shrinking, and voters were feeling the pinch.

President Clinton's big budget surplus worked against Gore.

"If Clinton had been less squeamish about putting some chunk of that money back into people's pockets in the form of a tax cut, then Gore probably would have been elected," Bartels said.

Gore did narrowly win the popular vote.

Lately, RDI per capita has been weak. In the second quarter, it rose just 1% from a year earlier.

Since 1948, no party in the White House has won a popular majority for president when RDI per capita growth was that low.

By other measures, RDI per capita is improving. It rose at an annualized 1.7% pace in the second quarter, the best in a year. And it should be strong this quarter. RDI per capita jumped 1.2% in July vs. June. That's 14.2% annualized.

But much of that jump was due to child tax credit checks. They won't come every month, though lower tax withholding continues.

Nonfarm payrolls have fallen by 2.7 million since Bush took office, including 2.4 million factory jobs.

Bush knows this is troublesome. On Labor Day, he announced a new Commerce Department post to address the loss of manufacturing jobs to foreign countries.

"I want you to understand that I understand that Ohio manufacturers are hurting, that there's a problem with the manufacturing sector," he told workers in Ohio.

Income growth for voters could be worse than most economic data suggest if the economy sheds high-paying manufacturing jobs held by voters while creating low-paying service-sector jobs for nonvoting immigrant aliens.

Immigrant aliens are 8% of the working-age population. They account for half of the growth in the work force in recent years.

Immigrants with low-wage jobs curb per capita income even when voters' incomes grow. In that case, a drop in RDI per capita may not be much for Bush to worry about.

But immigrants also depress wages and sometimes "take" jobs from voters, even while "creating" other new jobs.

The economy may grow and even add jobs, but voters might not have much to show for it. Immigrants might get better jobs and raises, but they don't vote.

For now, most analysts are upbeat about the overall economy.

"Just about every report's been really good," said James Paulsen, chief investment strategist at Wells Capital Management.

"It's true that we've had a 'recovery without jobs,' but it's also true that employment is always the last thing to turn," Paulsen said. "I think we might have a 5% quarter going (for real GDP growth) right as we speak."