New York, September 10--Economists continue to pare their forecasts for hiring and economic growth as high oil prices and other uncertainties sap confidence among businesses.
The 55 economists who participated in the latest Wall Street Journal Online economic forecasting survey, on average, expect the economy to add 182,000 jobs a month for the next 12 months. That's down from an average forecast of 194,000 jobs a month in the August survey and from 207,000 in May.
The economists also marked down their forecasts for gross domestic product, the total value of good and services produced in the economy. They now expect the economy to expand at a 3.6% rate in the third quarter and 4.0% in the fourth period. As recently as June, they had forecast growth at an average rate of 4.3% over the balance of the year. In the second quarter, GDP grew at a 2.8% rate.
Job creation has been on a roller coaster through much of the year, spiking to a high of 353,000 in March but sagging back to below 100,000 in June and July. The picture appeared to brighten again in August, though modestly, when nonfarm payroll employment rose by 144,000 jobs and the unemployment rate tightened to 5.4%, the lowest level since October 2001.
Economists pointed to an array of factors when asked to diagnose the swings in hiring. A rise in crude-oil prices, which approached $50 a barrel in futures trading in New York last month, likely played a part, as did what economists say is sagging business confidence. The two factors are intertwined; high oil prices come at a time when companies are still smarting from the 2001 recession. Although the economy has been expanding for more than two years, executives remain hesitant to take on the cost of new employees.
"Businesses have been through a lot over the last few years, and many of them don't have a great deal of tolerance for uncertainty," said Stephen Gallagher of Societe Generale in New York. "They reacted to their worry that consumers may be cutting back."
There are signs that some of that skittishness could be abating, however. Mr. Gallagher noted that companies appear more upbeat about their long-term prospects since investment in new equipment is broadening. That view is bolstered by a mid-August survey of chief executives by the Business Roundtable, which showed that most are planning to increase hiring and capital spending in the months ahead. That's a much happier note than executives sounded last year, when most said they were doing more firing than hiring.
But David Wyss of Standard & Poor's remains concerned about the tone in boardrooms, saying that the optimism found in the Business Roundtable's survey may have been fleeting. "That was that week," he said. New terrorism alerts, oil prices and other factors still have employers on edge, he said.
The pace of job creation is near the point where economists said they believe the Fed could opt to slow the pace of its interest-rate increases. The central bank has made clear it plans to gradually lift interest rates from the low levels it had maintained to help lift the economy out of recession. It has raised rates twice this year and is widely expected to do so again when it meets on Sept. 21.
In the survey, economists said they believe the Fed would scale back on the pace of its rate increases if monthly payrolls growth remained at an average of about 100,000 for a meaningful period. That is near the pace of hiring that was seen early in the summer.
Still, economists left their interest-rate forecasts in the current survey largely unchanged from what they predicted beginning in June. They expect the Fed's target for the federal-funds rate, what banks charge each other for overnight loans, to be 2% by year's end, up from 1.5% now. The economists expect the Fed to lift that target to around 2.75% by mid-2005.
