New York, NY, Mar. 12--Many economists admit they are stumped by the question of why the expanding U.S. economy isn't churning out lots of new jobs, as it did so faithfully in the 1990s. But the latest WSJ.com survey of 55 economists shows that most agree on one point: "outsourcing" isn't the prime culprit.
A majority of economists said they believe that the movement of jobs overseas has played a role in the labor market's slow rebound. Only 16% said they felt outsourcing has been a "significant" factor.
Despite the weak job growth, the economists also are maintaining their forecasts that the economy will continue to grow at a healthy pace this year, though they think the Federal Reserve will put off thoughts of jacking up interest rates until the second half.
Last week, the government surprised economists by announcing that only 21,000 new nonfarm payroll jobs were created in February, far short of the consensus forecast of 125,000 and the 150,000 or so jobs per month needed to keep up with population growth. Job growth has been puny for months, repeatedly falling short of forecasts. That has raised questions about the durability of the economy's current upswing because the difficulty of finding new jobs eventually could scare some people away from shopping malls and car and home purchases.
Most economists, though, remain fairly confident that job growth eventually will kick in and that the recovery will stay on course. The survey, conducted late last week and early this week, showed that they haven't reduced their economic growth forecasts for the year. The average forecasts for the annual rate of inflation-adjusted growth in gross domestic product, the nation's total output of goods and services, were unchanged from a month earlier at 4.5% for the first quarter, 4.4% for the second quarter, 4.1% for the third quarter and 4% for the fourth quarter.
But the slow job growth has persuaded the economists that the Federal Reserve will try to encourage business investment and hiring by waiting longer before raising its target for short-term interest rates from the current 1%, a 46-year low. In the latest survey, 50% of the economists think the first rise in the Fed's target rate will come after August. A month ago, only 29% of the economists responding to the survey thought the Fed would hold off that long.
One of the economists, David Rosenberg of Merrill Lynch & Co., forecast that the Fed will wait until July 2005 before beginning to push rates higher.
On average, the economists think the target rate will stand at 1.5% in December, down from the 1.7% average forecast in February's survey.
A few of the economists nudged their economic growth forecasts higher, while others trimmed their predictions. David Littmann, chief economist for Comerica Inc., a Detroit bank, shaved his forecast for full-year growth to 4% from 4.2%. Littmann said talk of raising taxes as a way to shrink the U.S. budget deficit will add to uncertainty and may make business people less likely to invest. If the November election leads to a political consensus for reducing the deficit by raising taxes rather than by cutting spending, Littmann said, the economy is likely to tip into a recession by late 2005 or early 2006.
Though outsourcing of American jobs to overseas locations has become a big political issue, most of the economists played down its effect on the growth of employment since the recession ended in 2001. While 16% said outsourcing has had a significant effect on U.S. job growth, 39% said it has had a "meaningful but not significant impact" and 44% said it has had little impact.
On average, the economists estimated that the total number of U.S. jobs lost by movement of operations overseas since 2001 has been 188,000 in the services sector and 502,000 in manufacturing, for a total of 690,000.
