• With: Dan Henninger, Mary Anastasia O'Grady, James Freeman, Kim Strassel

    Still ahead, troubling new job numbers this week. Are they a sign of a new economic downturn or is the recovery still on track?

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    VARNEY: New applications for unemployment benefits jumped sharply last week, to their highest level since January, yet another sign that the jobs picture is worsening. So what about the rest of the economy? Is the recovery on track or heading off the rails?

    James, what do you say?

    FREEMAN: I think we're continuing to bump along. I don't think you can say we're sliding into recession. Just to continue with the Reagan theme and making comparisons, one thing that's disturbing during the Reagan years, real disposable personal income was growing 10 times the rate of the Obama era. We actually in the early part of this year are seeing real disposable income, what people have after taxes, adjusted for inflation, shrinking.

    (CROSSTALK)

    VARNEY: This is very important to the average voter. The cash in their pocket --

    FREEMAN: That's right.

    VARNEY: -- after taxes, the money in their pocket, that's come down this year?

    FREEMAN: It's actually shrinking in January and February. It's basically a little -- slightly positive last year. But to the average person it's just not the crummy employment numbers we've seen, it's the cash in the pocket, which isn't there.

    VARNEY: Mary, we've got the greater growth slowing down, we understand, in the first quarter of this year, job recreation rate cut in half, the unemployment rate still above 8 percent. Now, do you think we're headed to recession?

    O'GRADY: I don't think we're going to have a recession. I agree with James, that we're just going to sort of bump along the bottom. But, you know, this week there was an interesting survey out from a very important group of job creators in this country, small business owners, who are members of the National Federation of Independent Businesses, and they did a survey. The March results were very discouraging. Nine out of 10 sectors that they surveyed on, business owners were more pessimistic about the economy. They did not expect to be adding staff. They did not -- they found that -- difficult to hire jobs, those job openings were -- were not really growing. They were worried about inflation. They were worried about poor sales. They were worried about taxes, overregulation. It was a very negative picture. And these are the people on the frontline, and they are the most important job creators in the country.

    VARNEY: That's a pretty long laundry list you had there.

    Dan?

    HENNINGER: To Mary's point, recession occur because of investor pessimism. Investors get pessimistic, they withdraw from the economy. Recoveries occur because of investor confidence. The economy starts growing again. We cannot say that investors have confidence right now for the reasons you just heard. They're slightly depressed.

    In terms of the recovery, I think there are two parts of that going on. Recovery is occurring in terms of corporate profits. American corporations are very dynamic, very strong. They're very good at adjusting. We are not having a recovery in the employment market. We are not creating new jobs. I think that's the part of the recovery that most voters are looking at. The corporate profit in this case, they're not falling into their pockets, they're falling into the bottom line for shareholders. That's good, but we're not getting the jobs we should be getting in a real recovery.

    VARNEY: In each of the last two years, we've seen the green chutes of recovery trampled on. Are we seeing the same thing this year, third year in a row?

    FREEMAN: Third year in a row, early part of the year, there's good news, then it tails off. I don't know. I think it's possible you see a modest improvement as we go into the fall. That's I don't think we -- politically, I'm not sure Mitt Romney can count on a terrible economy when people vote.

    (CROSSTALK)

    VARNEY: A two percent growth rate. Supposing we get to that in the summer and fall? That's not where America ought to be.

    FREEMAN: No.

    VARNEY: That's not the feeling you should have in America three years after the end of a recession, is it?

    FREEMAN: No, it isn't. It's historically bad when you look at other deep recessions. Usually there's a big snap-back, a big rebound. That's why it's discouraging seeing that story on the income.

    (CROSSTALK)

    O'GRADY: There's concern about inflation out there. The Fed says there's no inflation, but the -- the Fed --

    (CROSSTALK)

    VARNEY: Gas prices, food prices?

    O'GRADY: The regional banks say that when they survey the people who live in their districts, those people are worried about inflation.

    And the other thing about the Fed that's interesting is, you know, Ben Bernanke has every motivation to be talk up the economy. Yet, when they talk to him, he's a very nervous guy. I mean, he says this is not anything that he's very confident about.

    VARNEY: Dan, I've got a smile on my face, because I've lived in America for nearly 40 years. The feeling that I always got from America was of a robust, lively, vigorous, go-ahead, knock-them-flat economy.

    (LAUGHTER)

    I do. That's the feeling I got.

    HENNINGER: Yes!

    VARNEY: I don't get that feeling now, Dan.

    HENNINGER: Because it's not there. It's because Barack Obama is not giving it the wherewithal to do that. If he wanted to do one single thing to revive the economy, he would put a reduction in the corporate tax rate on the table. He could get that passed. Is that happening? No, it isn't. Instead we're getting the "Buffett rule."

    FREEMAN: I think that economy you want, that we've always enjoyed, it's there, it's being restrained. It's kind of like a car idling right now, ready to roar, but these are very healthy companies. So if you take away some of the Washington pressure and uncertainty, I think the good times can come back.

    VARNEY: Well, you know, we all agree that the economic outlook is indeed far from rosy. And that may be the president's biggest challenge heading into November. But can Mitt Romney step up and make the case, not only against Obama's economic policies, but for his own? Our panel weighs in on that next.

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    VARNEY: With Rick Santorum bowing out of the Republican race, Mitt Romney can finally turn his attention to the fall fight against President Obama. If this week is any indication, it's shaping up to be quite a brawl. So what will the November election turn on? Will it be the so- called war on women? Will it be the economy? Or what?

    Kim, you know, the economy has taken a lot of attention this week, but I've got to say that the fight over women, that holds center stage now, doesn't it?