A Bounce For Bush
Steady interest rates and an expanding economy give the president some good news, for a change
It's not really too surprising that George W. Bush's visit to the floor of the New York Stock Exchange last week marked only the second time that a sitting president had made such an appearance. (The first was Ronald Reagan in 1985.) After all, most politicians probably think it's better to be seen as a representative of the common man and Main Street than of shiny-suited financiers and Wall Street.
But Bush's big problem right now is that instead of Main Street or Wall Street, he might be more associated with Haifa Street, the lethal "street of fear" in Baghdad where U.S. and Iraqi troops fought insurgents last month. So Wall Street's not a bad alternative for an embattled president dealing with a foreign policy nightmare, especially when he can talk up what's turning out to be a vibrant economic boom. On the same day that Bush visited the NYSE and gave an upbeat speech at historic Federal Hall in Manhattan-"consumers are confident, investors are optimistic," the president declared-the Commerce Department reported that the U.S. economy grew at a snappy 3.5 percent pace in the fourth quarter of 2006. "This was a strong number," says Joel Prakken, chairman of Macroeconomic Advisers in St. Louis, "that showed the year really ended strong."
Investors agreed, pushing the Dow Jones industrials up nearly 100 points. The economy's performance was especially impressive considering that it wasn't so many weeks ago that economists were whispering that the fourth quarter might be a "one handle"-meaning growth between 1.0 and 1.9 percent. Now instead of a "hard" or "soft" landing, bearish investment pros are talking about a "growth scare" where a surprisingly robust economy would push the Federal Reserve into raising interest rates. (The Fed, in its placid statement last week, seems to be worrying less about both weak growth and rising inflation.)
The fourth-quarter spurt brings the economy full circle. Growth started fast in 2006, up 5.6 percent in the first three months of the year, but then weakened dramatically as the housing market tanked, oil prices rose sharply, and auto production slackened. Gross domestic product grew by only 2.6 percent in the second quarter and 2 percent in the third. Yet for the year, the economy expanded by 3.4 percent-better than the 3.2 percent rate in 2005 despite all those challenges.
Even though many Americans own houses worth less than they were a year ago, they continue to spend like NBA rookies after draft day. Real personal consumption expenditures-a measure of consumer strength-rose 4.4 percent in the fourth quarter. Helping consumers afford their spending habits was a 5.4 percent jump in real disposable personal income. For the year, it climbed 2.7 percent vs. 1.2 percent in 2005. The recent drop in gas prices "means that consumers had more money in their pockets than they expected," says Wachovia senior economist Mark Vitner, "and they spent it." Vitner also notes that lots of those dollars went toward buying ever cheaper flat-panel televisions. "They just flew off the shelves."
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