Brad DeLong's Semi-Daily Journal (2004)

Why Oh Why Can't We Have a Better Press Corps? (Special Wall Street Journal News Pages Edition)

As you will recall, I speculated that the reason that Table C-1, p. 98 of the 2004 Economic Report of the President forecasts an average of 132.7 million payroll jobs in 2004 is that that is more than the 132.5 million payroll jobs at the start of Bush's term. The fact that this forecast is simply silly is neither here nor there. Under the assumption of steady growth throughout the year, it implies an end of 2004 payroll employment number of 134.5 million--way higher than our current 130.1 million or so. It also implies that productivity growth this year is going to come to a screeching halt, an odd thing to forecast after eight years during which productivity growth has averaged 3.2% per year.

The key is not to make a credible forecast but to avoid an embarrassing headline: "Bush Administration Forecast Says Fewer Jobs This Year than at Start of Administration."

And it has worked. Here is the very sharp Greg Ip caught in the trap:

WSJ.com - White House Sees 2.6 Million Jobs Created This Year: In an optimistic forecast, the White House expects the U.S. economy to create 2.6 million jobs this year. That would erase the entire loss of jobs since President Bush took office. The Economic Report of the President, released Monday, projects that nonfarm jobs will rise to an annual average of 132.7 million this year, above the 132.4 million where employment stood in January 2001.... The White House projections imply the creation of about 300,000 jobs a month this year, said Chris Varvares, president of Macroeconomic Advisers LLC, a forecasting firm in St. Louis. "The job gains are at the high end of a plausible range," he said. His firm expects job creation of about 200,000 a month and 1.2 million for the year. Growth has averaged 73,000 a month since September....

But what doesn't make it into the story--and should at this point--is that such rapid employment growth is very hard to make consistent with the administration's 4% per year real GDP forecast. (That point is made only in the last sentence of the article, and is made so obliquely that I guess few people understood its implications.) And the first line is misleading: 320,000 jobs a month times 12 months means the forecast has 3.8 million jobs this year--not 2.6.

Gregory Mankiw, chairman of President Bush's Council of Economic Advisers, which wrote the report, told reporters, "There's every indication that the economy will do well in 2004 and that jobs will be created." He later declined through a spokesman to comment specifically on the payroll projections....

See? Not an economic forecast, but a political document. Whenever an economist runs away from his own forecasts, it's a very bad sign. Greg Ip should have flagged this: that Greg Mankiw is unwilling to comment on his own employment forecast numbers tells us something, and something important.

The White House forecasts are not out of line with historical experience. They work out to 2% growth [actually, they don't: the forecast rate of employment growth is 3% per year; Greg's been misled], less than the annual average of 2.4% from 1993 to 2000 [Ha!]. But both White House and private economists have been too optimistic on job creation recently despite healthy economic growth. Employers have sharply boosted productivity, or output per employee, reducing the need to add to payrolls. Mr. Varvares says the White House forecast implies a sharp slowing in productivity growth this year.

And the trap closes on Greg Ip. I would have opened the story, "In a very optimistic employment forecast, the White House expects the U.S. economy to create 3.8 million jobs this year. But such rapid employment growth will be accompanied by a dark grey lining: the White House expects the rapid productivity growth seen in the past decade to come to a screeching halt, and expects the productivity of America's workers and businesses to grow little if at all in 2004.

My reconstruction of the talking points for the administration's employment growth projections:

• Our actual projected rate of payroll employment growth is a not unreasonable 320,000 a month.

• That's a projected end-of-2004 payroll employment number of 134.5 million.
• That's a reasonable rate of employment growth: it's only a little faster percentage-wise than employment growth during the Clinton recovery.
• That's a reasonable rate of employment growth: it's even a little slower percentage-wise than employment growth during the Reagan recovery.
• the forecast was frozen with last October's data the last data that made it in. It looks like our projections are ridiculous (470,000 a month) because bad news since October has put us a million jobs behind where we thought we would be.
• Of course we aren't highballing the employment growth figure. That's ridiculous! Why would we set ourselves up to fail by highballing our employment growth forecast?
• The table doesn't have estimates of productivity growth. I don't have the underlying estimates of productivity growth at my fingertipos.