New York, NY, Apr. 9--Economists lifted their forecasts for job creation but not enough to change the outlook for unemployment or suggest the economy is picking up steam.
The 55 economists who participated in the latest Wall Street Journal Online economic-forecasting survey, on average, expect the economy to add 177,000 jobs each month over the coming 12 months. Two months ago, the group predicted growth of 155,000 a month through Election Day.
That changed after a Labor Department report last week showed job creation in March reached a four-year high. Employers outside the agriculture segment added 308,000 jobs, a sign that hiring is finally catching up with the economy. From September 2003 through February, growth in payrolls had averaged a lackluster 75,000 a month.
Economists, on the whole, don't believe the pickup in payrolls will spur much additional economic activity. In the April survey, economists nudged their estimates of growth in the just-completed first quarter to 4.4% from the 4.5% inflation-adjusted annualized rate that they predicted in the March survey.
The average forecast for second-quarter growth in gross domestic product, the total value of all goods and services produced in the economy, edged up to a 4.5% rate in the April survey from 4.4% the prior month. Over the balance of the year, the economists forecast growth at a 4.1% rate, which would match the rate of growth seen in the fourth quarter of 2003.
Mark Zandi of Economy.com suggests the reason most economists haven't adjusted their GDP forecasts higher is that "people are revising down expectations for productivity growth." The high productivity levels which helped fuel the economic recovery during recent years cooled in the fourth quarter of 2003, from very high levels in the middle of the year.
Economists don't expect much change in the unemployment rate, despite the pickup in job creation. They left their forecast for May unemployment at 5.6% and for November at 5.4%. Gains in payroll levels don't necessarily translate into a lower jobless rate. In general, the economy needs to create about 150,000 jobs a month just to keep up with population growth.
Gains in job creation can trigger increases in the jobless rate the government calculates. Only those unemployed who are actively seeking work are included in the calculation of the jobless rate. When hiring begins to increase, "discouraged" people who had given up on the job hunt often re-emerge. In March the unemployment rate inched up to 5.7% from 5.6%.
Zandi, who predicts average payroll growth of 170,000 jobs a month over the next year, believes the unemployment rate will climb to 5.8% in May and remain at 5.7% in November.
Mickey Levy, an economist at Bank of America, though, notes that unemployment has recovered significantly from its June 2003 peak of 6.3%. "My guess is that the unemployment rate will stay pretty close to where it is," he says, adding that "the measured labor force should pick up."
The economists don't expect any of this to pressure the Federal Reserve into lifting interest rates right away. But many have moved up their forecasts for when rates will rise. Just 26% now believe the Fed will wait until after Election Day. In the March survey, 40% felt the central bank would wait that long.
The economists' average forecast for the 10-year Treasury note yield, with which mortgage rates are closely associated, inched lower. The group nudged its forecast for three-month Treasury bill yields higher, after cutting their forecasts in all but one of the prior seven months.
Economists expect inflation pressure to increase a bit, suggesting that the threat of deflation, or generally falling prices, is receding.
Those surveyed see consumer prices, as measured by the Labor Department's consumer-price index, rising to a 2.0% rate in May, up from the previous forecast of 1.9%.
