Larry Kudlow
Businesses created more than 200,000 new jobs for the sixth straight month. Second-quarter gross domestic product rebounded by 4 percent from the winter-weather doldrums. And the Manufacturing ISM Report exceeded all expectations, with big gains in new orders and employment.

So on the surface, the economy is looking better. And as a result, the Federal Reserve is on the cusp of a new and less-stimulating policy cycle -- which is a big reason why stocks sold off this week. A lot of investors are wondering what happens when the Fed takes its foot off the accelerator. Will burdensome tax and regulatory policies prevent any sort of economic breakout?

But let me throw in another uncertainty: politics. What is the Republican response to all this?

Yes, the GOP is favored to win the Senate. But I wouldn't be so confident. Polling shows many key races are up for grabs. The numbers are close.

And here's what I see as a big part of the problem: Instead of putting forth a clear growth message -- like a new Contract with America -- congressional Republicans this week voted for a lawsuit challenging President Barack Obama's abuse of executive power.

Now, suing the president is different from (SET ITAL) impeaching (END ITAL) the president. But is it so different in the public's eye? And don't most people think this lawsuit will go nowhere? And isn't this just a big distraction from key issues, such as the economy, tax reform, regulatory rollbacks, immigration reform and rewriting Obamacare?

In other words, is the GOP sending voters a clear message about what it will do if it captures the Senate and House?

Let's circle back to the economy. I'm all for good news, but the current expansion has registered only 2.1 percent annual growth -- the lowest in the post-World War II period -- and is $1.6 trillion below the economy's long-run potential to grow.

And at least 19 million Americans are underemployed. The so-called U-6 labor-impairment rate, followed closely by the head of the Federal Reserve, Janet Yellen, increased slightly to 12.2 percent in July. And measured against long-term trends, there are still about 6 million missing jobs. To get back to normal, businesses would have to create nearly 400,000 jobs a month by the end of the president's second term.

Take-home pay is also lagging. Wages remain soft at only 2 percent year on year. After-tax income, adjusted for inflation, is rising only 2.3 percent annually.


Larry Kudlow

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

Get the best of Townhall Finance Daily delivered straight to your inbox

Follow Townhall Finance!