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U.S. Economy Created Jobs In June, Less Than Economists Expected; Anti-Terror Dragnet Snagging More Suspects; Iraqis Polled On U.S. Presidential Election; Alan Keyes May Be The IL Rep. Candidate.

Aired August 06, 2004 - 14:00 ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

(BEGIN VIDEO CLIP)
ADM. CHARLES KUBIK, U.S. NAVY: Pretty soon, folks will learn that you don't pick a fight with a United States Marine.

(END VIDEO CLIP)

KYRA PHILLIPS, CNN ANCHOR: Iraqi insurgency: A radical cleric's fight with American forces. They're still battling it out.

Jobs and the American economy: Timid employers create fewer jobs than expected. What does it mean for you?

The economy and the race for the White House: What will today's numbers mean for the vote tally in November?

Board game goes big time: A tournament where it pays to know a lot of four-letter words.

From the CNN Center in Atlanta, I'm Kyra Phillips. Miles is off. This hour of CNN's LIVE FROM starts right now.

We begin this hour with headcounts, missed marks, and how the newest job figures are being employed in the fight over one job in particular. The U.S. economy, we're told, created jobs last month for the 11th month in a row. But the magnitude of the growth, just 32,000 positions, stunned and disappointed economists, who'd expected 200,000 new jobs, at least.

Still, the overall U.S. unemployment rate, which is calculated differently, dropped last month one-tenth of one percent. And what about wages? Assuming you've got a job, is your income keeping pace with your outgo?

The data show earnings are lagging, and our coverage continues with CNN's Ceci Rodgers in Chicago.

(BEGIN VIDEOTAPE)

CECI RODGERS, CNN CORRESPONDENT (voice-over): For many Americans, take-home pay is not keeping up with rising costs. Energy and gas prices are at record highs. Healthcare and medical insurance costs are soaring. Earnings adjusted for inflation, known as real earnings, have shrunk more than one percent in the past year. Economists say it's worrisome. MARK ZANDI, ECONOMY.COM: The wage growth is very slow. It's very constrained. The job market has improved, but it's still very soft. There are still many people who are unemployed, underemployed. Employers still have the upper hand in negotiations with their employees, and employees just aren't getting those pay increases.

RODGERS: Economy.com studied employment industry by industry and found another disturbing trend -- 55 percent of the new jobs created in the past year were in low wage industries such as restaurants, retailing, hotels, and temporary help positions.

The question is why? Most likely, businesses still lack confidence in the economic recovery and are reluctant to bring on new employers for higher wage positions.

Not everyone agrees that stagnant wages are a problem. In fact, some economists say people are simply looking at the wrong statistics.

BRIAN WESBURY, ECONOMIST: When you include tips, commissions, and bonuses, we see growth in wages or in earnings of about 3.7 percent in the past year. So, that's faster than inflation. So, it's a completely different picture.

RODGERS: Even so, in past recoveries, base wages have shown strong gains.

(on-camera): The weak jobs report for July seems to reinforce what many are hearing anecdotally -- that while the economy continues to grow, that growth is not being felt in the wallets and pocketbooks of many working Americans. Ceci Rodgers, CNN financial news, Chicago.

(END VIDEOTAPE)

PHILLIPS: Three months before an election, economic ripples can quickly cause political tidal waves. Here's John Kerry, Democrat for president, last hour in rural Missouri.

(BEGIN VIDEO CLIP)

SEN. JOHN KERRY (D-MA), PRESIDENTIAL CANDIDATE: We can do better than having Americans see the declining number of jobs per month. It was 67,000 a month before. It was 200 and some thousand for one month before that. But basically, over the last four years, we've had a net negative loss of jobs in the United States of America. And the jobs that are being created pay $9,000 less on average than the jobs that we're losing overseas.

(END VIDEO CLIP)

PHILLIPS: Well, President Bush, campaigning today in D.C. and New Hampshire, says that new jobs are new jobs, and he claims some of the credit.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: There's more work to do to make this economy stronger. Remember what we've been through. We've been through a lot. We've been through a recession. We've been through corporate scandals. We've been through the terrorist attacks. But we've overcome these obstacles, because our workers are great, because our farmers are really good at what they do.

We've overcome these obstacles because the entrepreneurial spirit is strong. And we've overcome these obstacles because of well-timed tax cuts.

(END VIDEO CLIP)

PHILLIPS: Well, the jobs data coincided with another week of record prices for oil. The White House acknowledges sky-high energy costs could well be hindering hiring.

So, we turn to Mike Mandel, chief economist at "BusinessWeek," for some insights. Let's try and tie those two together, can we, Michael?

MICHAEL MANDEL, CHIEF ECONOMIST, "BUSINESSWEEK": Oh, absolutely. What we saw in the jobs report was across the board weakness in the jobs numbers, which suggests that it's got to be something affecting every industry, and that has to either be oil or fear of terrorism. That's really the only two possibilities.

PHILLIPS: Let's talk about what happened to a comprehensive energy bill, and what happened to that? There was so much talk about that on behalf of the Bush administration. Now they're saying there needs to be more. Why wasn't there more before this even became an issue?

MANDEL: Well, partly, you know, the comprehensive energy bill would not have actually solved very much. What we've got going on here is a massive change in the demand/supply balance of world oil that the energy bill wouldn't have had very much effect on.

What we're really seeing here is a lot of demand coming out of China, a lot of demand coming out of the U.S., weakness in supply -- it means higher oil prices.

PHILLIPS: All right, you talk about weakness in supply. Let's talk about that supply. So, much blame being tacked onto the war on terror -- how far can that blame go?

MANDEL: You know, it's the war on terror, it's weakness in the Saudi oil fields, it's what's happening in Russia, and it's just a lot of fear that -- people had thought that there was a lot more supply than there was, and that's turning out to not be true.

PHILLIPS: What about China?

MANDEL: China is growing very fast. China is consuming lots of oil. And it turns out that that's putting on a lot of upward pressure as well. You know, the real question is not why oil prices have gone up so high. The question is, are they going to go higher? And that could be a real problem for the economy.

PHILLIPS: All right, can you answer that? Are they going to go higher? We haven't seen much of a move. We sure haven't seen it gone under a dollar anyplace.

MANDEL: You know, the question right here, we're at 45, 44 -- the question is, is it going to get to 50, 55? You know that would really be a tremendous economic hit, and it's something that's worth worrying about at this point.

PHILLIPS: All right, so we've heard so much. Back to the energy bill, comprehensive energy bill, we've heard a lot of talk about that. We heard about it at the DNC -- Bill Richardson bragging about how well he's done with regard to other uses, alternative uses for energy.

Now, there's talk about it possibly going to be an agenda item at the RNC. Is that what the focus should be, is talking about an energy plan when it comes to gas prices, when it comes to oil? Should that be even higher than talking about jobs and economy?

MANDEL: Well, I think energy is a very important thing. You know, none of these energy bills are going to do very much in the short run. These are long run problems. And I think that we have to think about an energy bill as both boosting spending on new technology, which we're not seeing, and also doing more for conservation. So, it has to be two-pronged.

And you know, this is not just the domain of just the Republicans or the Democrats. It's got to be an across the board policy.

PHILLIPS: All right, you talked about the long run. Let's talk about the economy, how that trickles down and affects everything else. And also, is there a short run answer?

MANDEL: For the energy? No, there's no short run answer at this point.

PHILLIPS: All right, long-run effects...

MANDEL: Long run, what you really need is you really need new energy technologies. You know, the energy technologies that we have now, like internal combustion, date back to the 1860s. You know, that's ancient. This is old technology that we're using, and that's partly why we're so dependent on places like Saudi Arabia.

I think that we need something new. We need new technologies. And that's the only way we're going to get out of this bind, especially if places like China keep growing.

PHILLIPS: Mike Mandel, chief economist for "BusinessWeek." Is it true you've been riding your bike to work?

MANDEL: No, but I've been walking.

PHILLIPS: There you go. See, we'll all be in better shape.

MANDEL: That's right.

PHILLIPS: Thanks, Michael.

Well, turning now to the war on terror and a man accused of using American Web sites to weave his own web of illicit activity. U.S. officials want Babar Ahmad extradited from Britain now. He was arrested there yesterday, made his first court appearance today.

U.S. officials say for six years, Ahmad used American-based Internet sites to raise money for terror-related activities in Chechnya and Afghanistan.

They also say a raid of his parents' home turned up a document detailing the vulnerability of U.S. naval ships in the Strait of Hormuz. It's unclear if or when Ahmad will be extradited. He's due back in court next Friday.

Now, from London to Lahore, Albany to Saudi Arabia, the anti- terror dragnet is snagging suspects far and wide right now. And if you're having trouble keeping track of all the names and arrests, this next report should help.

CNN justice correspondent Kelli Arena looks at two of the key suspects now in custody.

(BEGIN VIDEOTAPE)

KELLI ARENA, CNN JUSTICE CORRESPONDENT (voice-over): Law enforcement sources say they believe one of the men arrested this week in Britain personally conducted some of the surveillance of potential terror targets in the United States.

Esa al-Hindi is described as a senior al-Qaeda operative. Sources tell CNN he was on the ground in New York City in early 2001, and one source says law enforcement has definitively placed him in three of the buildings that were surveilled: the New York Stock Exchange, the Citigroup Building, and the Prudential Building in Newark, New Jersey.

EVAN KOHLMANN, GLOBALTERRORALERT.COM: He's someone with military experience. He's someone who's perfectly fluent in English, in Urdu, in Arabic. He's a transnational al-Qaeda operative who has his fingers in many pots.

ARENA: U.S. officials say al-Hindi can currently be described as al-Qaeda's chief of operations in the UK. They say he moved operational information between key components of al-Qaeda in Britain, Pakistan, and the United States. Terrorism experts say al-Hindi is a Muslim convert and former commander of an al-Qaeda training camp in Afghanistan.

Investigators believe he was plotting to attack London's Heathrow Airport, based in part on intelligence from Pakistan.

KOHLMANN: I think it's an ominous sign. Whenever there's an attack of this scale going on in London, it's not just a British thing. It's a U.S. thing too, because most of the time when Al Qaeda strikes, it tends to strike in multiple, simultaneous attacks.

ARENA: Al-Hindi's arrest, and others in Pakistan, including that of alleged al-Qaeda computer expert Mohammed Naeem Noor Khan, have led to multiple intelligence leads. Especially troubling, government officials say, alleged al-Qaeda operatives in Pakistan recently contacted an individual or individuals in the United States.

JAMES COMEY, DEPUTY ATTORNEY GENERAL: We have, as we've said before, reason to believe that we are in a very serious threat environment, and we're working like crazy to try and make sure that threat does not come to fruition.

ARENA (on-camera): Investigators say, given his alleged position, al-Hindi may have knowledge of plans to attack in the United States. The trick is getting him to divulge all he knows. Kelli Arena, CNN, Washington.

(END VIDEOTAPE)

PHILLIPS: Want to help the war on terrorism? Then you need to keep a stiff upper lip. Details on a new no-smiling policy for passport photos.

We polled voters in the U.S. about their choice for president, but what about the people in Iraq? Their perspective on the American election just might surprise you.

(COMMERCIAL BREAK)

PHILLIPS: News around the world now. London -- don't say cheese. People posing for passports are now faced to keep a straight face, because files might confuse the agency's new facial recognition technology. Did you get all that? Sunglasses and hair that dips below the eyebrows are also prohibited.

London again, a heart-related health crisis. That's why Iraq's top Shiite cleric was forced to leave his home country and seek medical treatment in Britain, according to one of his aids. It's the first time Ali al-Sistani has left Iraq in years.

Najaf, Iraq: high enemy casualties. The U.S. military says roughly 300 militia fighters have died since yesterday when American troops were called in to help fight forces loyal to Muqtada al-Sadr. Two U.S. Marines have also died in that fighting.

A spokesperson for the radical cleric blames the U.S. and Najaf's governor for the new violence. But American and Iraqi officials say the militants attacked several police stations.

Now, if the U.S. casualty reports in Najaf are accurate, it would seem to suggest a lopsided victory for U.S. forces and their Iraqi partners there, though the fighting continues in other areas. We mentioned how U.S. forces say they were called into help only after being asked by Najaf's governor.

Well, earlier today, I spoke with Admiral Charles Kubik with the U.S. Navy about this new arrangement.

(BEGIN VIDEO CLIP)

KUBIK: First and foremost, it's the Iraqi security forces that have the responsibility. And what we have now is when they find themselves being a bit overwhelmed, they have the ability to call for support.

And whether it's the Marines or other members of the multinational force, we have the capability to come to their aid and to support them, and that's really what you see happening right now.

And I think pretty soon, folks will learn that you don't pick a fight with a United States Marine.

(END VIDEO CLIP)

PHILLIPS: Admiral Kubik is in charge of a remarkable project that teaches ordinary Iraqis new job skills. He and I talked about how it works. We're going to air the rest of that interview later this hour. Whether it's Najaf, Baghdad, or the road to Ramadi, much of Iraq remains a battle zone more than 16 months after the coalition invaded.

And with so much uncertainty and with so many civilians dying all the time, you might think the average Iraqi would be rooting for a regime change here in the U.S. But some interesting surveys suggest otherwise. CNN's John Vause explains.

(BEGIN VIDEOTAPE)

JOHN VAUSE, CNN, BAGHDAD: It could be the issue which decides the race for the White House.

BUSH: Iraq...

VAUSE: A day barely goes by without talk of...

KERRY: Iraq...

VAUSE: But what about the people who live there, those...

BUSH: Iraqis.

VAUSE: Who would...

KERRY: Iraqis.

VAUSE: ... prefer as U.S. president for the next four years?

AMJAD HUSSEIN, VETERINARIAN (through translator): I do not prefer either one, because I regard them as our enemy.

VAUSE: Well, there is that. Still, a recent poll by Sadoun Dulame from the Iraqi Research and Study Center asked more than 3,000 Iraqis who they prefer. It was Bush over Kerry by a big margin. SADOUN DULAME, IRAQI POLLSTER: They said because he has a good rule to have liberated us from the brutal regime of Saddam Hussein.

VAUSE: Only 15 percent actually responded. But Ra'ad Mehdi, a Baghdad taxi driver is typical of those who did answer.

RA'AD MEHDI, TAXI DRIVER (through translator): I prefer George Bush to stay in power because the situation in Iraq is not stable now.

VAUSE (on-camera): Many Iraqis may not love George W. Bush, but they do consider him a strong leader. And among his supporters, there are concerns that a Kerry administration may pull U.S. troops out early.

(voice-over): So, here in Iraq, Bush supporters, or red Iraqis, tend to be better educated, living in urban centers. They would be more, you know, liberal. He scored especially high among women.

DULAME: Maybe he is good looking, more than Kerry.

VAUSE: Blue Iraqis, those who favor Kerry, are more conservative, wanting U.S. troops to leave sooner rather than later, like Mawaffq Hassan, a college student.

MAWAFFQ HASSAN, COLLEGE STUDENT (through translator): George Bush could not solve the problems of the current situation, so maybe John Kerry is better. For me, I elect John Kerry.

VAUSE: On the upside for Kerry, no one here has ever heard of Ralph Nader. John Vause, CNN, Baghdad.

(END VIDEOTAPE)

PHILLIPS: And you can hear from Bush next Thursday. The president and first lady Laura Bush will sit down for an exclusive joint interview with CNN's Larry King. That's Thursday, 9:00 p.m. Eastern.

Helping the Iraqis help themselves: Ahead on LIVE FROM, we're going to talk with the Iraqi graduate of a Navy program that taught him how to rebuild his country one brick at a time...

(COMMERCIAL BREAK)

PHILLIPS: News across America now. Forensics experts are on the scene of a grizzly killing Florida. Six bodies found this morning in a home in Deltona, north of Orlando. The victims range in age from 18 to the mid 30s. No word on a possible motive or suspect.

Authorities probing a deadly crash say a Greyhound bus rammed into the back of a tractor-trailer. Today's accident happened on Interstate 40 near Jackson, Tennessee. Three people were killed, more than a dozen others injured.

Surgeons in New York are expressing optimism on the progress of newly separated twins. The two-year-old Filipino boys who were conjoined at the head are recovering after more than 12 hours of surgery. One of the doctors monitoring their progress spoke earlier on CNN's "AMERICAN MORNING."

(BEGIN VIDEO CLIP)

DR. STEVEN SAFYER, MONTEFIORE MEDICAL CENTER: The operation was definitely a success. But it's important, very important to emphasize that it's one step in a path that we're going down. So, you can't declare victory. All you can say is that a very successful and very important battle was conducted two days ago.

(END VIDEO CLIP)

PHILLIPS: The two immediate concerns for the boys now -- infection and leak of cerebrospinal fluid.

Well, Illinois Republicans may have a candidate for the U.S. Senate race in the state. Former presidential hopeful Alan Keyes has not formally announced that he will accept the party's nomination. Judy Woodruff reports that if he does say yes, he will be taking on one of the Democrats' fastest rising stars.

(BEGIN VIDEOTAPE)

JUDY WOODRUFF, CNN REPORTER (voice-over): He sounds like a proud new candidate.

ALAN KEYES (R), POTENTIAL SEN. CANDIDATE: I'm deeply honored, of course, and also deeply challenged by the offer they have made.

WOODRUFF: But he's not saying yes, at least not yet. Alan Keyes will announce his decision this weekend.

KEYES: I'll talk to you all on Sunday.

WOODRUFF: And so, Illinois Republicans are still without a Senate candidate, with the election just three months away.

BARACK OBAMA (D), ILLINOIS SEN. CANDIDATE: And out of this long political darkness, a brighter day will come.

WOODRUFF: How do you pull a shooting star down to earth -- a conundrum the state GOP grappled with even before the Democratic National Convention sent Barack Obama into the political stratosphere.

OBAMA: There is not a liberal America and a conservative America. There is the United States of America.

WOODRUFF: Even before the Republicans' first string Senate candidate...

JACK RYAN, (R), FMR. ILLINOIS SEN. CANDIDATE: And there's no allegation of infidelity or breaking of laws -- kept all civil and criminal laws, kept my vows to my spouse.

WOODRUFF: ... was wiped out by a sex scandal. And their second stringer pulled himself out of play before game time.

MIKE DITKA, FMR. NFL COACH: I have a lot of commitments that I've made previous to this coming up.

WOODRUFF: It's been a bad news cycle for Illinois Republicans, up against...

OBAMA: A skinny kid with a funny name...

WOODRUFF: In Keyes, the party might not have found a winner, but it's definitely found a lightning rod.

KEYES: So, no, you don't give to a shameless, lying, oath- breaking president any kind of credit...

WOODRUFF: There he was in 2000, thundering against Bill Clinton during Keyes' second maverick campaign for the White House. Add to that two Senate runs, and he has lived more political lives than most. But Alan Keyes hasn't lived any of them in Illinois.

KEYES: ... that the State of Illinois has been and is now a leader in the United States of America.

WOODRUFF: If he runs, the Maryland resident will have to pull up stakes and move to the Midwest. A Keyes-Obama showdown would mark the first time ever both major parties have run black candidates in a marquee race. Illinois Republican officials insist they are not intentionally pitting an African American against Obama. It just worked out that way.

One thing is clear. If he's entered the fray, the next senator from Illinois will be black. And most political experts are betting that the next senator from Illinois will be Barack Obama. But if Keyes accepts the nomination, the former talk show host would certainly add fireworks. The outspoken conservative is a magnet for the media. He would spice up the contest, challenging Obama on issues and on race...

OBAMA: Thank you very much, everybody. God bless you.

WOODRUFF: ... dimming, perhaps, one of the Democrats' brightest starts.

(END VIDEOTAPE)

PHILLIPS: Well, Judy Woodruff's reporting there. And you can join Judy on "INSIDE POLITICS" for the latest on the presidential race, including the impact of the latest jobs figures. That's on "INSIDE POLITICS" with Judy Woodruff, 3:30 Eastern, 12:30 Pacific.

The numbers in today's jobs report fell far short of Wall Street's expectations...

(STOCK MARKET REPORT)

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com

Aired August 6, 2004 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(BEGIN VIDEO CLIP)
ADM. CHARLES KUBIK, U.S. NAVY: Pretty soon, folks will learn that you don't pick a fight with a United States Marine.

(END VIDEO CLIP)

KYRA PHILLIPS, CNN ANCHOR: Iraqi insurgency: A radical cleric's fight with American forces. They're still battling it out.

Jobs and the American economy: Timid employers create fewer jobs than expected. What does it mean for you?

The economy and the race for the White House: What will today's numbers mean for the vote tally in November?

Board game goes big time: A tournament where it pays to know a lot of four-letter words.

From the CNN Center in Atlanta, I'm Kyra Phillips. Miles is off. This hour of CNN's LIVE FROM starts right now.

We begin this hour with headcounts, missed marks, and how the newest job figures are being employed in the fight over one job in particular. The U.S. economy, we're told, created jobs last month for the 11th month in a row. But the magnitude of the growth, just 32,000 positions, stunned and disappointed economists, who'd expected 200,000 new jobs, at least.

Still, the overall U.S. unemployment rate, which is calculated differently, dropped last month one-tenth of one percent. And what about wages? Assuming you've got a job, is your income keeping pace with your outgo?

The data show earnings are lagging, and our coverage continues with CNN's Ceci Rodgers in Chicago.

(BEGIN VIDEOTAPE)

CECI RODGERS, CNN CORRESPONDENT (voice-over): For many Americans, take-home pay is not keeping up with rising costs. Energy and gas prices are at record highs. Healthcare and medical insurance costs are soaring. Earnings adjusted for inflation, known as real earnings, have shrunk more than one percent in the past year. Economists say it's worrisome. MARK ZANDI, ECONOMY.COM: The wage growth is very slow. It's very constrained. The job market has improved, but it's still very soft. There are still many people who are unemployed, underemployed. Employers still have the upper hand in negotiations with their employees, and employees just aren't getting those pay increases.

RODGERS: Economy.com studied employment industry by industry and found another disturbing trend -- 55 percent of the new jobs created in the past year were in low wage industries such as restaurants, retailing, hotels, and temporary help positions.

The question is why? Most likely, businesses still lack confidence in the economic recovery and are reluctant to bring on new employers for higher wage positions.

Not everyone agrees that stagnant wages are a problem. In fact, some economists say people are simply looking at the wrong statistics.

BRIAN WESBURY, ECONOMIST: When you include tips, commissions, and bonuses, we see growth in wages or in earnings of about 3.7 percent in the past year. So, that's faster than inflation. So, it's a completely different picture.

RODGERS: Even so, in past recoveries, base wages have shown strong gains.

(on-camera): The weak jobs report for July seems to reinforce what many are hearing anecdotally -- that while the economy continues to grow, that growth is not being felt in the wallets and pocketbooks of many working Americans. Ceci Rodgers, CNN financial news, Chicago.

(END VIDEOTAPE)

PHILLIPS: Three months before an election, economic ripples can quickly cause political tidal waves. Here's John Kerry, Democrat for president, last hour in rural Missouri.

(BEGIN VIDEO CLIP)

SEN. JOHN KERRY (D-MA), PRESIDENTIAL CANDIDATE: We can do better than having Americans see the declining number of jobs per month. It was 67,000 a month before. It was 200 and some thousand for one month before that. But basically, over the last four years, we've had a net negative loss of jobs in the United States of America. And the jobs that are being created pay $9,000 less on average than the jobs that we're losing overseas.

(END VIDEO CLIP)

PHILLIPS: Well, President Bush, campaigning today in D.C. and New Hampshire, says that new jobs are new jobs, and he claims some of the credit.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: There's more work to do to make this economy stronger. Remember what we've been through. We've been through a lot. We've been through a recession. We've been through corporate scandals. We've been through the terrorist attacks. But we've overcome these obstacles, because our workers are great, because our farmers are really good at what they do.

We've overcome these obstacles because the entrepreneurial spirit is strong. And we've overcome these obstacles because of well-timed tax cuts.

(END VIDEO CLIP)

PHILLIPS: Well, the jobs data coincided with another week of record prices for oil. The White House acknowledges sky-high energy costs could well be hindering hiring.

So, we turn to Mike Mandel, chief economist at "BusinessWeek," for some insights. Let's try and tie those two together, can we, Michael?

MICHAEL MANDEL, CHIEF ECONOMIST, "BUSINESSWEEK": Oh, absolutely. What we saw in the jobs report was across the board weakness in the jobs numbers, which suggests that it's got to be something affecting every industry, and that has to either be oil or fear of terrorism. That's really the only two possibilities.

PHILLIPS: Let's talk about what happened to a comprehensive energy bill, and what happened to that? There was so much talk about that on behalf of the Bush administration. Now they're saying there needs to be more. Why wasn't there more before this even became an issue?

MANDEL: Well, partly, you know, the comprehensive energy bill would not have actually solved very much. What we've got going on here is a massive change in the demand/supply balance of world oil that the energy bill wouldn't have had very much effect on.

What we're really seeing here is a lot of demand coming out of China, a lot of demand coming out of the U.S., weakness in supply -- it means higher oil prices.

PHILLIPS: All right, you talk about weakness in supply. Let's talk about that supply. So, much blame being tacked onto the war on terror -- how far can that blame go?

MANDEL: You know, it's the war on terror, it's weakness in the Saudi oil fields, it's what's happening in Russia, and it's just a lot of fear that -- people had thought that there was a lot more supply than there was, and that's turning out to not be true.

PHILLIPS: What about China?

MANDEL: China is growing very fast. China is consuming lots of oil. And it turns out that that's putting on a lot of upward pressure as well. You know, the real question is not why oil prices have gone up so high. The question is, are they going to go higher? And that could be a real problem for the economy.

PHILLIPS: All right, can you answer that? Are they going to go higher? We haven't seen much of a move. We sure haven't seen it gone under a dollar anyplace.

MANDEL: You know, the question right here, we're at 45, 44 -- the question is, is it going to get to 50, 55? You know that would really be a tremendous economic hit, and it's something that's worth worrying about at this point.

PHILLIPS: All right, so we've heard so much. Back to the energy bill, comprehensive energy bill, we've heard a lot of talk about that. We heard about it at the DNC -- Bill Richardson bragging about how well he's done with regard to other uses, alternative uses for energy.

Now, there's talk about it possibly going to be an agenda item at the RNC. Is that what the focus should be, is talking about an energy plan when it comes to gas prices, when it comes to oil? Should that be even higher than talking about jobs and economy?

MANDEL: Well, I think energy is a very important thing. You know, none of these energy bills are going to do very much in the short run. These are long run problems. And I think that we have to think about an energy bill as both boosting spending on new technology, which we're not seeing, and also doing more for conservation. So, it has to be two-pronged.

And you know, this is not just the domain of just the Republicans or the Democrats. It's got to be an across the board policy.

PHILLIPS: All right, you talked about the long run. Let's talk about the economy, how that trickles down and affects everything else. And also, is there a short run answer?

MANDEL: For the energy? No, there's no short run answer at this point.

PHILLIPS: All right, long-run effects...

MANDEL: Long run, what you really need is you really need new energy technologies. You know, the energy technologies that we have now, like internal combustion, date back to the 1860s. You know, that's ancient. This is old technology that we're using, and that's partly why we're so dependent on places like Saudi Arabia.

I think that we need something new. We need new technologies. And that's the only way we're going to get out of this bind, especially if places like China keep growing.

PHILLIPS: Mike Mandel, chief economist for "BusinessWeek." Is it true you've been riding your bike to work?

MANDEL: No, but I've been walking.

PHILLIPS: There you go. See, we'll all be in better shape.

MANDEL: That's right.

PHILLIPS: Thanks, Michael.

Well, turning now to the war on terror and a man accused of using American Web sites to weave his own web of illicit activity. U.S. officials want Babar Ahmad extradited from Britain now. He was arrested there yesterday, made his first court appearance today.

U.S. officials say for six years, Ahmad used American-based Internet sites to raise money for terror-related activities in Chechnya and Afghanistan.

They also say a raid of his parents' home turned up a document detailing the vulnerability of U.S. naval ships in the Strait of Hormuz. It's unclear if or when Ahmad will be extradited. He's due back in court next Friday.

Now, from London to Lahore, Albany to Saudi Arabia, the anti- terror dragnet is snagging suspects far and wide right now. And if you're having trouble keeping track of all the names and arrests, this next report should help.

CNN justice correspondent Kelli Arena looks at two of the key suspects now in custody.

(BEGIN VIDEOTAPE)

KELLI ARENA, CNN JUSTICE CORRESPONDENT (voice-over): Law enforcement sources say they believe one of the men arrested this week in Britain personally conducted some of the surveillance of potential terror targets in the United States.

Esa al-Hindi is described as a senior al-Qaeda operative. Sources tell CNN he was on the ground in New York City in early 2001, and one source says law enforcement has definitively placed him in three of the buildings that were surveilled: the New York Stock Exchange, the Citigroup Building, and the Prudential Building in Newark, New Jersey.

EVAN KOHLMANN, GLOBALTERRORALERT.COM: He's someone with military experience. He's someone who's perfectly fluent in English, in Urdu, in Arabic. He's a transnational al-Qaeda operative who has his fingers in many pots.

ARENA: U.S. officials say al-Hindi can currently be described as al-Qaeda's chief of operations in the UK. They say he moved operational information between key components of al-Qaeda in Britain, Pakistan, and the United States. Terrorism experts say al-Hindi is a Muslim convert and former commander of an al-Qaeda training camp in Afghanistan.

Investigators believe he was plotting to attack London's Heathrow Airport, based in part on intelligence from Pakistan.

KOHLMANN: I think it's an ominous sign. Whenever there's an attack of this scale going on in London, it's not just a British thing. It's a U.S. thing too, because most of the time when Al Qaeda strikes, it tends to strike in multiple, simultaneous attacks.

ARENA: Al-Hindi's arrest, and others in Pakistan, including that of alleged al-Qaeda computer expert Mohammed Naeem Noor Khan, have led to multiple intelligence leads. Especially troubling, government officials say, alleged al-Qaeda operatives in Pakistan recently contacted an individual or individuals in the United States.

JAMES COMEY, DEPUTY ATTORNEY GENERAL: We have, as we've said before, reason to believe that we are in a very serious threat environment, and we're working like crazy to try and make sure that threat does not come to fruition.

ARENA (on-camera): Investigators say, given his alleged position, al-Hindi may have knowledge of plans to attack in the United States. The trick is getting him to divulge all he knows. Kelli Arena, CNN, Washington.

(END VIDEOTAPE)

PHILLIPS: Want to help the war on terrorism? Then you need to keep a stiff upper lip. Details on a new no-smiling policy for passport photos.

We polled voters in the U.S. about their choice for president, but what about the people in Iraq? Their perspective on the American election just might surprise you.

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PHILLIPS: News around the world now. London -- don't say cheese. People posing for passports are now faced to keep a straight face, because files might confuse the agency's new facial recognition technology. Did you get all that? Sunglasses and hair that dips below the eyebrows are also prohibited.

London again, a heart-related health crisis. That's why Iraq's top Shiite cleric was forced to leave his home country and seek medical treatment in Britain, according to one of his aids. It's the first time Ali al-Sistani has left Iraq in years.

Najaf, Iraq: high enemy casualties. The U.S. military says roughly 300 militia fighters have died since yesterday when American troops were called in to help fight forces loyal to Muqtada al-Sadr. Two U.S. Marines have also died in that fighting.

A spokesperson for the radical cleric blames the U.S. and Najaf's governor for the new violence. But American and Iraqi officials say the militants attacked several police stations.

Now, if the U.S. casualty reports in Najaf are accurate, it would seem to suggest a lopsided victory for U.S. forces and their Iraqi partners there, though the fighting continues in other areas. We mentioned how U.S. forces say they were called into help only after being asked by Najaf's governor.

Well, earlier today, I spoke with Admiral Charles Kubik with the U.S. Navy about this new arrangement.

(BEGIN VIDEO CLIP)

KUBIK: First and foremost, it's the Iraqi security forces that have the responsibility. And what we have now is when they find themselves being a bit overwhelmed, they have the ability to call for support.

And whether it's the Marines or other members of the multinational force, we have the capability to come to their aid and to support them, and that's really what you see happening right now.

And I think pretty soon, folks will learn that you don't pick a fight with a United States Marine.

(END VIDEO CLIP)

PHILLIPS: Admiral Kubik is in charge of a remarkable project that teaches ordinary Iraqis new job skills. He and I talked about how it works. We're going to air the rest of that interview later this hour. Whether it's Najaf, Baghdad, or the road to Ramadi, much of Iraq remains a battle zone more than 16 months after the coalition invaded.

And with so much uncertainty and with so many civilians dying all the time, you might think the average Iraqi would be rooting for a regime change here in the U.S. But some interesting surveys suggest otherwise. CNN's John Vause explains.

(BEGIN VIDEOTAPE)

JOHN VAUSE, CNN, BAGHDAD: It could be the issue which decides the race for the White House.

BUSH: Iraq...

VAUSE: A day barely goes by without talk of...

KERRY: Iraq...

VAUSE: But what about the people who live there, those...

BUSH: Iraqis.

VAUSE: Who would...

KERRY: Iraqis.

VAUSE: ... prefer as U.S. president for the next four years?

AMJAD HUSSEIN, VETERINARIAN (through translator): I do not prefer either one, because I regard them as our enemy.

VAUSE: Well, there is that. Still, a recent poll by Sadoun Dulame from the Iraqi Research and Study Center asked more than 3,000 Iraqis who they prefer. It was Bush over Kerry by a big margin. SADOUN DULAME, IRAQI POLLSTER: They said because he has a good rule to have liberated us from the brutal regime of Saddam Hussein.

VAUSE: Only 15 percent actually responded. But Ra'ad Mehdi, a Baghdad taxi driver is typical of those who did answer.

RA'AD MEHDI, TAXI DRIVER (through translator): I prefer George Bush to stay in power because the situation in Iraq is not stable now.

VAUSE (on-camera): Many Iraqis may not love George W. Bush, but they do consider him a strong leader. And among his supporters, there are concerns that a Kerry administration may pull U.S. troops out early.

(voice-over): So, here in Iraq, Bush supporters, or red Iraqis, tend to be better educated, living in urban centers. They would be more, you know, liberal. He scored especially high among women.

DULAME: Maybe he is good looking, more than Kerry.

VAUSE: Blue Iraqis, those who favor Kerry, are more conservative, wanting U.S. troops to leave sooner rather than later, like Mawaffq Hassan, a college student.

MAWAFFQ HASSAN, COLLEGE STUDENT (through translator): George Bush could not solve the problems of the current situation, so maybe John Kerry is better. For me, I elect John Kerry.

VAUSE: On the upside for Kerry, no one here has ever heard of Ralph Nader. John Vause, CNN, Baghdad.

(END VIDEOTAPE)

PHILLIPS: And you can hear from Bush next Thursday. The president and first lady Laura Bush will sit down for an exclusive joint interview with CNN's Larry King. That's Thursday, 9:00 p.m. Eastern.

Helping the Iraqis help themselves: Ahead on LIVE FROM, we're going to talk with the Iraqi graduate of a Navy program that taught him how to rebuild his country one brick at a time...

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PHILLIPS: News across America now. Forensics experts are on the scene of a grizzly killing Florida. Six bodies found this morning in a home in Deltona, north of Orlando. The victims range in age from 18 to the mid 30s. No word on a possible motive or suspect.

Authorities probing a deadly crash say a Greyhound bus rammed into the back of a tractor-trailer. Today's accident happened on Interstate 40 near Jackson, Tennessee. Three people were killed, more than a dozen others injured.

Surgeons in New York are expressing optimism on the progress of newly separated twins. The two-year-old Filipino boys who were conjoined at the head are recovering after more than 12 hours of surgery. One of the doctors monitoring their progress spoke earlier on CNN's "AMERICAN MORNING."

(BEGIN VIDEO CLIP)

DR. STEVEN SAFYER, MONTEFIORE MEDICAL CENTER: The operation was definitely a success. But it's important, very important to emphasize that it's one step in a path that we're going down. So, you can't declare victory. All you can say is that a very successful and very important battle was conducted two days ago.

(END VIDEO CLIP)

PHILLIPS: The two immediate concerns for the boys now -- infection and leak of cerebrospinal fluid.

Well, Illinois Republicans may have a candidate for the U.S. Senate race in the state. Former presidential hopeful Alan Keyes has not formally announced that he will accept the party's nomination. Judy Woodruff reports that if he does say yes, he will be taking on one of the Democrats' fastest rising stars.

(BEGIN VIDEOTAPE)

JUDY WOODRUFF, CNN REPORTER (voice-over): He sounds like a proud new candidate.

ALAN KEYES (R), POTENTIAL SEN. CANDIDATE: I'm deeply honored, of course, and also deeply challenged by the offer they have made.

WOODRUFF: But he's not saying yes, at least not yet. Alan Keyes will announce his decision this weekend.

KEYES: I'll talk to you all on Sunday.

WOODRUFF: And so, Illinois Republicans are still without a Senate candidate, with the election just three months away.

BARACK OBAMA (D), ILLINOIS SEN. CANDIDATE: And out of this long political darkness, a brighter day will come.

WOODRUFF: How do you pull a shooting star down to earth -- a conundrum the state GOP grappled with even before the Democratic National Convention sent Barack Obama into the political stratosphere.

OBAMA: There is not a liberal America and a conservative America. There is the United States of America.

WOODRUFF: Even before the Republicans' first string Senate candidate...

JACK RYAN, (R), FMR. ILLINOIS SEN. CANDIDATE: And there's no allegation of infidelity or breaking of laws -- kept all civil and criminal laws, kept my vows to my spouse.

WOODRUFF: ... was wiped out by a sex scandal. And their second stringer pulled himself out of play before game time.

MIKE DITKA, FMR. NFL COACH: I have a lot of commitments that I've made previous to this coming up.

WOODRUFF: It's been a bad news cycle for Illinois Republicans, up against...

OBAMA: A skinny kid with a funny name...

WOODRUFF: In Keyes, the party might not have found a winner, but it's definitely found a lightning rod.

KEYES: So, no, you don't give to a shameless, lying, oath- breaking president any kind of credit...

WOODRUFF: There he was in 2000, thundering against Bill Clinton during Keyes' second maverick campaign for the White House. Add to that two Senate runs, and he has lived more political lives than most. But Alan Keyes hasn't lived any of them in Illinois.

KEYES: ... that the State of Illinois has been and is now a leader in the United States of America.

WOODRUFF: If he runs, the Maryland resident will have to pull up stakes and move to the Midwest. A Keyes-Obama showdown would mark the first time ever both major parties have run black candidates in a marquee race. Illinois Republican officials insist they are not intentionally pitting an African American against Obama. It just worked out that way.

One thing is clear. If he's entered the fray, the next senator from Illinois will be black. And most political experts are betting that the next senator from Illinois will be Barack Obama. But if Keyes accepts the nomination, the former talk show host would certainly add fireworks. The outspoken conservative is a magnet for the media. He would spice up the contest, challenging Obama on issues and on race...

OBAMA: Thank you very much, everybody. God bless you.

WOODRUFF: ... dimming, perhaps, one of the Democrats' brightest starts.

(END VIDEOTAPE)

PHILLIPS: Well, Judy Woodruff's reporting there. And you can join Judy on "INSIDE POLITICS" for the latest on the presidential race, including the impact of the latest jobs figures. That's on "INSIDE POLITICS" with Judy Woodruff, 3:30 Eastern, 12:30 Pacific.

The numbers in today's jobs report fell far short of Wall Street's expectations...

(STOCK MARKET REPORT)

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