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A Re-election Jobs Report?

A Commentary By Lawrence Kudlow

Did the big March jobs report put President Obama back on the road to re-election? If so, he can thank the GOP, whose tax cuts saved him from himself.

You could hear cheering all the way from the West Wing when the Labor Department showed a 216,000 gain in non-farm payrolls, the biggest number in quite some time. Plus, the unemployment rate continued its decline to 8.8 percent. Not so long ago it was nearly 10 percent.

Corporate payrolls have now increased by 478,000 for the first three months of the year. Over the past three months, the average payroll gain has been 159,000, which is more than twice the monthly gain in 2010. If payrolls stay on track, that would mean nearly 2 million jobs created in 2011.

So sure, the White House must be very happy. In fact, everybody should be happy at an improving jobs picture.

But here's the sublime irony. The wake-up in job creation is a function of Republican policy. After all, for two years the Obama Democrats spent themselves into oblivion, with over $1 trillion of so-called big-government stimulus. Didn't work. By the end of last year, that failed stimulus wore off, and it was replaced by Republican tax cuts.

Remember that in mid-December, after his election shellacking, President Obama signed a deal that extended the Bush tax rates across the board. The top marginal rate stayed at 35 percent. Investment tax rates for cap-gains and dividends held at 15 percent. Most businesspeople I know -- folks who work in both large and small companies -- welcomed the tax-rate freeze as a sign that maybe the war against growth, capital formation and small business was either coming to an end or at least a two-year truce.

So, presto, the jobs numbers start jumping in the new low-tax year.

The most important telltale sign for jobs is the household employment survey, which includes most of the nation's small businesses. It's the survey that signals real turning points in job creation since it's the small-business owner-operators who are most sensitive to changing marginal tax rates.

And clearly, tax incentives matter: For March, the household survey jumped 291,000. Year-to-date, household employment is up 658,000, and is on track for a 2.6 million gain for the year. This small-business jobs push is also what's driving down the unemployment rate.

So it looks like Republican tax cuts have saved Obama from himself. And the GOP ought to stay on this tax-cutting path as it moves toward limiting the budget. Full-throated flat-tax reform to lower marginal rates and broaden the base will create brand new incentives for growth and jobs.

The GOP also should be on the warpath for full-fledged corporate-tax-rate reduction. Get rid of the GE loopholes and knock the rate down to 15 percent. As they continue to advance on the spending-cut front, Republicans should balance out their message with strong pro-growth tax cuts.

That said, there is a big glitch in the economic and jobs story: It's called inflation -- especially oil- and gas-price increases, but also food-price hikes. And there are new signs of price increases for all manner of goods and services. Inflation is the economy's Achilles' heel.

Crude oil just hit $108. Nationwide gasoline is now around $3.60.The CEO of Wal-Mart warns of major retail price increases, saying they are already showing up in dairy and cotton products, with more coming in transportation. Consumer product companies are raising prices. Hershey's chocolate is raising prices. And while the ISM manufacturing report in March showed strong business conditions, 85 percent of survey respondents reported higher prices.

And the energy-price hikes are already depressing consumer incomes. Average hourly earnings in the jobs report have been flat for the last two months, even while the consumer price index has been steaming ahead at a 5.6 percent annual rate over the past three months. In fact, measured over three-month periods, a real-wage income proxy, which includes average hourly earnings and hours worked adjusted for the consumer price index, has actually declined four consecutive months. This is a warning that inflation is taking its toll.

Both Democrats and Republicans in Washington must understand that over-easy Fed policy has depressed the dollar and reignited inflation. Politicians in both parties should be fighting for stable money. On the energy front, deregulation to unleash drill, drill, drill is more important now than ever.

So while there's good news on jobs, the battle for the economy has not yet been won. And the November 2012 election is still a long way away.


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