Jobs Expected to Continue to Lag Economy
By EDUARDO PORTER

Job growth is likely to remain tepid even as the economy moves ahead, according to a survey of professional forecasters by the Federal Reserve Bank of Philadelphia. Indeed, the bank said yesterday, the economists' outlook for employment has grown gloomier even as their predictions of economic expansion are becoming more robust.

The 32 economists polled by the Philadelphia Fed, drawn from private business and academia, increased their forecast for economic growth this year to 4.6 percent, on average, from a previous projection of 4.3 percent. Yet at the same time, they trimmed their 2004 forecast of job creation to 1.1 million jobs, from 1.25 million.

Economists have been puzzled for months by the sluggishness of the employment market. The new forecast suggests that they have come to terms with the pattern established in this recovery: fast economic growth being driven by even faster expansion in productivity, with businesses meeting demand by squeezing more output from their current employees instead of hiring more workers.

"The economy has a greater capacity to grow because of stronger productivity growth," said James Glassman, an economist at J. P. Morgan Chase, who participated in the survey. "So we need stronger growth to get everybody employed."

Mr. Glassman estimated that the nation's output needs to grow some 5 percent a year for several years if the economy is to create jobs for the 2.5 million people who have lost employment since the start of 2001 as well as absorb new workers coming into the job market.

The forecast is at odds with an estimate this month by the White House Council of Economic Advisers, which said that the economy would generate more than 2.5 million jobs this year. The forecast, ridiculed by Democrats as being out of touch with the real world, was swiftly disowned by some administration officials, including Treasury Secretary John W. Snow.

The economy has lost some 2.3 million jobs since President Bush took office, with little evidence of job creation despite economic growth. Since July, the economy has added only 42,000 jobs a month, on average, while expanding at an 8.2 percent annual pace in the third quarter of 2003 and a 4 percent pace in the fourth.

The new forecast points to similar developments in 2004, with employment growth around 91,000 new jobs a month, substantially less than the 150,000 or so needed to keep up with the growth in the work force.

Though a weak job market is a potential problem for the president as he begins the November election campaign, there are not many policy levers left to pull in hopes of encouraging businesses to hire more. "The federal funds rate is as low as you can get it, and fiscal policy is already extremely accommodative," said Joseph T. Abate, an economist at Lehman Brothers, who took part in the Fed survey. "It's really more of a confidence issue on the part of businesses."

Ultimately, economists say, hiring will recover because companies can squeeze only so much productivity from their workers. Productivity growth fell from a 9.5 percent pace in the third quarter to 2.7 percent in the fourth.

The economists in the survey forecast that yearly productivity growth over the next decade will average 2.5 percent. Next year, they project, the economy will add 2.25 million jobs - or 188,000 a month - even as growth in overall output runs 3.8 percent.

But having forecast employment rebounds before, economists seem more uncertain now. "There is some point where job growth turns around," said Ed McKelvey of Goldman, Sachs, who participated in the survey. "We're just not good at forecasting it."