NEW YORK (CNN/Money) -
The White House forecast for job growth this year is even more optimistic than it appeared at first blush.
When the Bush administration issued the Economic Report of the President Monday, several news organizations reported there would be 2.6 million new jobs this year. But that number was based on the difference between projected average payrolls for this year and last year.
In order to achieve that number, a White House source explained Tuesday, the President's Council of Economic Advisers (CEA) is forecasting about 320,000 new jobs will be created every month this year. That would be about 3.8 million in total, or about 2.9 percent higher than the December 2003 total estimated by the Labor Department.
While the White House has not actually changed its forecast for the rate of job growth this year, the 2.6 million cited in some headlines Monday underestimated the total change in payrolls the government is forecasting for this year. (CNN/Money's version of the story from Reuters used that headline number).
Later Tuesday, CEA Chairman Gregory Mankiw, in testimony before the Joint Economic Committee, confirmed the CEA expected job growth of "about 3 percent" this year. "Under this forecast, we should expect substantial job increases," Mankiw said, according to a Reuters report.
Indeed, in an interview with CNNfn in Washington Tuesday, Mankiw said the 2.6 million number reflected how much higher the average level of monthly payrolls would be this year.
Each month, the Labor Department says how many workers are on the nation's payrolls. In late November 2003, when the White House prepared the report, that number was estimated to be about 130.7 million at the end of 2003.
By the end of 2004, the White House forecasts payrolls should be at about 134.5 million, the White House source said. The average of those two months, plus the 10 months in between, amounts to about 132.7 million, according to the White House report, or 2.6 million higher than the 12-month average in 2003.
But to tally total job growth, subtract payrolls on the last day of December 2003 from the last day of December 2004, a difference of about 3.8 million, according to those figures.
The White House source said that forecast for job growth, based on data available in late November 2003, was not unreasonable. As Mankiw testified Tuesday, the administration is assuming payroll growth of about 3 percent, a number that would still be slower than payroll growth in the late 1980s and mid-1990s.
|An earlier version of this story reported that Monday's Economic Report of the President indicated that there would be 5 million new jobs in 2004. Actually, it forecasted 3.8 million.
Still, the economy has not consistently added 320,000 jobs a month since 1994, and most economists don't expect that kind of job growth this year.
"Sometimes I think I'm too optimistic," said David Kelly, senior economist at Putnam Investments in Boston, who expects between 1.5 million and 2 million new jobs this year, "but I think the CEA's forecast is a big stretch."
The White House source acknowledged that productivity growth would have to slow dramatically in order for its forecast to come true. Driven by technological innovation, productivity, a measure of output per worker hour, jumped 4.9 percent in 2002 and 4.2 percent in 2003.
The White House source said its new forecast assumes that productivity growth will slow to a 1.5 percent growth rate this year and in 2005. Though most economists do expect productivity growth to slow this year, the White House forecast would be well below recent historical averages, and some economists doubt such a dramatic slowdown is possible.
"We will see a slowdown in productivity growth, but some part of the recent gains are permanent," Kelly said.
Trouble with estimates
Payrolls grew by just 112,000 jobs outside the farm sector in January, the Labor Department said last week. After revisions to prior months' data, January's payroll growth was the biggest in about three years, but was lower than most economists' forecasts.
In fact, economists have often struggled to forecast job growth lately; they were overly optimistic in 11 out of the past 14 months. Some economists believe productivity growth, combined with the effects of globalization, have conspired to keep job growth weaker than usual during an economic rebound.
President Bush may need significant job growth to help him get re-elected in November. His father lost a re-election bid because of a "jobless recovery" in the early 1990s, but the current labor market slump is worse by many measures.
The White House has had its own troubles in forecasting job growth in recent years. In February 2003, the CEA published a chart in connection with its argument in favor of the Bush tax plan, which seemed to predict about 300,000 new jobs a month for that year.
But the White House says that chart is inaccurate. And the White House source said Tuesday that the administration actually expected 200,000 to 250,000 news jobs a month last year -- a prediction that was repeated by Treasury Secretary John Snow late in the year.
Few economists were predicting such job growth in 2003, however, and it did not materialize.