If This Is a Boom Why Does it Feel Like a Squeeze?

AMY CONN-GUTIERREZ/AP
A man shops for washers and dryers in Plano, Texas

Judging from the grim faces of the cashiers, clerks and butchers picketing California supermarkets, you would think we were in a deep economic slump. Golden State grocery workers are on strike for the first time in 25 years, over a plan by Kroger, Safeway and other chains to shift a bigger chunk of the cost of health care to their unionized labor force of some 70,000. Under competitive siege from nonunion superstores like Wal-Mart, whose health packages for hourly workers are stingier, the grocery chains complain that they are paying 50% more on health coverage than they were four years ago. In full-page ads in California newspapers, they proclaim, "We simply cannot pass these costs along to our customers."

But passing the medical buck to staff members isn't going over well, either. Norma Perez, 30, picketing with her three kids outside a Ralphs in North Hollywood, says that under the chain's proposed policy, she and her husband would incur an additional $500 or so a month in medical costs jeopardizing mortgage payments on their house outside Los Angeles or putting the kids' health at risk. "California is already down, and imagine if we all go apply for medical welfare," says the cashier. The supermarkets dispute such dire predictions. As of last week, the two sides were aisles apart on a deal.

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These are not happy times for U.S. workers. The unemployment rate is 6.1%, and cash-strapped companies have been asking workers still lucky enough to have jobs to pay more for health care. So the startling announcement last week that the American economy surged 7.2% in the third quarter the most torrid rate of quarterly expansion since 1984--has many wondering whether this is, at last, the start of a sustained recovery that might pull workers out of their funk. Until that happens, strapped workers and the unemployed are wondering why, if the growth rate is so high, they feel so low?

The impressive rise in gross domestic product (GDP) was fueled by strong exports, consumer spending and housing-related expenditures. Business spending increased 11.1%, the second straight quarterly rise for a sector that's critical to any sustainable turnaround. Corporate profits for firms in the S& P 500 are expected to be up 20%, on average, from a year ago. And consumers continue to anchor the economy. The summer tax cuts pumped $13.7 billion into their wallets, igniting a 6.6% rise in spending. "Consumers spent aggressively on everything from cars to homes," says economist Mark Zandi of Economy.com .

Even so, workers remain tense about nearly everything job security, benefits costs, puny raises. A nationwide health-care squeeze is contributing to these concerns. Insurance premiums are up 14% so far in 2003, and this will probably be the third straight year of double-digit increases. Though the Federal Government has cut taxes, many state and local governments, facing budget crises, have raised them in one form or another for property, tolls, college tuition, cigarettes, automobile registration. With an inflation rate of 1.2%, prices for goods and services have remained essentially flat, but we're still feeling the pinch. Adding to the pressure: wages have risen only marginally.

True relief will come when the unemployment rate starts to fall. That will probably take another quarter or two, as job growth typically lags GDP expansion. So far this has been a jobless recovery. Since the recession started in March 2001, the U.S. economy has shed 2.7 million jobs. The Administration would like to hit a target set by some private-sector forecasters to create 200,000 jobs a month, but it has been wary of making its own forecasts. In recent years spikes in the growth rate have faded. Economists expect this year's fourth quarter to cool to a still healthy 4%. To sustain long-term growth, the economy needs what's known as a virtuous cycle, in which increases in demand for goods and services are such that businesses have to expand capacity, hire more workers and produce more goods, all of which generates additional profits and demand for more workers.

For now, the economy's improvement is based partly on the painful work-force reductions of recent years. Companies have become more productive through downsizing and squeezing higher output from workers. Efficiency is terrific, of course, but it won't necessarily translate into job growth. Diane Swonk, chief economist at Bank One in Chicago, says the unemployment rate needs to fall to around 4.5% before we will "feel" the expansion. For now, says Sung Won Sohn, chief economist at Wells Fargo, "all of us, both business and consumers, are being squeezed." Here are some reasons why for many of us it doesn't feel as if we are living in boom times: