HAPPY DAYS.(The Talk of the Town)(George W. Bush on the economy)

Things are looking up--according to George W. Bush and the Times, anyway. Last Tuesday, the paper led its front page with this sunny triple-decker: "manufacturing at highest level in two decades; hiring outlook is upbeat; stocks at 18-month peak on run of positive data--bush optimistic." The headline's main claim, however, was inaccurate. It misinterpreted an economic indicator that is designed to gauge whether factories are churning out more or less stuff than they did last month, not absolute levels of production. The most reliable measure of how manufacturing is doing is the Federal Reserve's index of industrial production, which in October was 112.7, compared with a high of 118.4 in June of 2000. The November figure comes out next week. A six-point jump isn't impossible, but it would be virtually unprecedented.

What we can be sure of is that most manufacturing companies are still operating well below capacity, and that millions of manufacturing jobs have been lost. In October, 73.5 per cent of plants and equipment were in active use. Three years ago, more than eighty per cent were. When President Bush took office, about 17.1 million Americans worked in factories; today, 14.5 million do. Last month, another seventeen thousand manufacturing jobs disappeared. Manufacturing employment has now fallen for forty straight months.

Over all, the economy is rebounding from three years of stagnation, but the fate of manufacturing can't be dismissed, especially since we're entering an election year. Although manufacturing now accounts for only about a seventh of G.D.P., it remains the sector most attuned to the economic cycle; it is an irreplaceable source of innovation and exports; and it has great symbolic importance. Many more of us spend our day shuffling papers and hitting keyboards than actually making things, but we still like to think of the United States as the workshop of the world. (Moreover, many people who do make things happen to live in swing states.)

The President, understandably, doesn't linger on the facts that Toyota recently overtook Ford as the world's second-largest car company and that Levi Strauss is closing its remaining American plants. "Our economy was strong and it is getting stronger," Bush declared last week. "Productivity is high; business investment is strong; housing construction is strong. The tax relief we passed is working." That is all true, even though the economy created far fewer jobs in November than had been expected. But the lesson of this resurgence is not one that Republicans usually like to celebrate: together with Alan Greenspan and his colleagues at the Fed, the Bush Administration has demonstrated that an activist economic policy can revive even the most moribund of economies, at least for a while.

Just a few months ago, some experts feared that the United States might be heading for a Japanese-style slump, in which poor economic growth persisted for a decade or more. To head off this possibility, the Fed kept interest rates at historic lows, and the White House trumpeted its third set of tax cuts in two years, while quietly signing off on a big increase in federal spending. Such a combination of expansionary monetary and fiscal policy is the ...