Larry Kudlow

Yes, corporate profits are slowing and jobs are softening. Despite 52 months of ongoing jobs gains and 1.3 million new payrolls in the past year, December jobs registered only 18,000 and the unemployment rate ticked back up to (a still historically low) 5 percent. Despite years of gains from a booming business sector, corporate profits are in fact falling at about a 6 percent clip.

But the last thing we need now is root-canal economic populism from the campaign trail and the mainstream media telling us that Americans are unhappy. Unhappy? According to a Gallup Poll released last week, “Most Americans say they are generally happy, with a slim majority saying they are ‘very happy.’” They’re also prosperous. According to Investor’s Business Daily, household wealth in the U.S. soared 51 percent to $58.6 trillion in last year’s third quarter from $38.8 trillion in 2002.

Meanwhile, the Goldilocks economy remains alive and well. It’s still the greatest story never told. And while Goldilocks may have softened somewhat, getting her back on track is not rocket science.

The key thing to remember is that businesses drive the economy. Businesses create jobs and incomes for consumers to spend. Today’s John Edwards/Mike Huckabee anti-business populism sounds more like William Jennings Bryan than Adam Smith. It’s absolutely crazy. They attack Wall Street and investors, which is another way of attacking capital. Without capital investment, there will be no new business, no new jobs, and no middle class.

And the reality is that today’s economic weakness is coming from the business side, not the sub-prime/housing/consumer side. We’re witnessing high energy and raw-material prices cause unit costs for businesses to rise faster than prices. That spells weakening profits.

As for this notion that consumers are tapped out, take a look at disposable income. After inflation, it’s rising better than 2 percent. Strong income gains of 3.7 percent for hourly earnings are running 1 percentage point ahead of inflation measures based on personal consumption. As it happens, car sales were strong this week. They’re running 3.6 percent at an annual rate, ahead of the third quarter. Even holiday sales have surprised on the upside.

All of this is why the Fed needs to deliver a 50 basis point rate cut at its January 30 meeting. A big-bang rate cut would help businesses, consumers, and mortgage owners. It would make the cost of money cheaper and expand the overall liquidity base of the economy.


Larry Kudlow

Lawrence Kudlow is host of CNBC’s “The Kudlow Report,” which airs nightly from 7 p.m. to 8 p.m.
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