Stimulus``...is a one-time shot, a drug addict getting a hit,'' said William Dunkelberg, the National Federation of Independent Business chief economist in Washington. ``It will feel good for a quarter, but then the stimulus is gone and it's not clear what would fill that void.''
Paulson Job-Growth Forecast May Come Up Short, Economists Say
By Brendan Murray
May 23 (Bloomberg) -- Treasury Secretary Henry Paulson's prediction that tax rebates will create half a million new jobs this year may come up short as the impact of the stimulus fades, according to a survey of economists.
``It is a one-time shot, a drug addict getting a hit,'' said William Dunkelberg, the National Federation of Independent Business chief economist in Washington. ``It will feel good for a quarter, but then the stimulus is gone and it's not clear what would fill that void.''
At stake for Paulson's boss, George W. Bush, is whether he will become the first president since Dwight D. Eisenhower to preside over a drop in payrolls in his final year in office. The administration is counting on the more than $100 billion of rebates this year to spur a rebound in growth that encourages companies to boost hiring.
The median estimate of 10 forecasters responding to a Bloomberg News survey was for an increase of 158,500 jobs resulting from the stimulus package. Another nine respondents declined to offer a forecast, either doubting there would be any increase in payrolls or judging that the impact was impossible to project with any accuracy.
Paulson traveled to Kansas City, Missouri, this month to watch printing presses roll out checks as part of a $168 billion stimulus plan. He said that more than $100 billion will come as cash to consumers and that the package ``will lead to the creation of over 500,000 new jobs that would not have been created otherwise.''
`Way Too High'
Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. in New York, called Paulson's forecast ``way too high,'' saying a better guess would be 100,000 to 200,000 jobs.
The Federal Reserve said this week officials expect the U.S. unemployment rate will rise as the housing slump deepens and consumers rein in spending. Policy makers anticipate the rate will rise to 5.5 percent to 5.7 percent in the final quarter of 2008 from 5 percent in April.
Administration officials base their forecast on the expectation of a jolt to consumer spending, which accounts for about 70 percent of U.S. gross domestic product.
``And the tooth fairy creates a million jobs when the kids spend their money,'' said Joel Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania. ``If we get a tenth of that, I would be happy.''
Computer Model
Paulson's estimate came from a computer model developed by Macroeconomic Advisers LLC, the St. Louis- based forecasting firm, which requires the administration to plug in assumptions about when and how much money will be spent. The rebates and business-tax incentives amount to about 1 percent of U.S. GDP, according to the Treasury.
Responding to questions, Phillip Swagel, the Treasury's assistant secretary for economic policy, defended the administration's forecast.
``The stimulus will provide a boost to the economy,'' he said in an e-mailed reply. ``Sure, they would have been created eventually, but we'll get them sooner and that's useful.''
Paulson cited evidence on May 8 that consumers in 2001 and 2003 spent, rather than saved or repaid debt, one-third to two-thirds of two separate tax-cut and stimulus packages.
Saul Hymans, director of economic forecasting at the University of Michigan in Ann Arbor, predicted that while the job dividend may fall short of 500,000 this year, the stimulus may still have an effect in 2009.
2009 Impact
``The job effect of the stimulus continues to strengthen through the first half of next year and then its effect begins to wane,'' he said, anticipating a total gain of 380,000 in the first and second quarters of 2009.
Most analysts see further declines in U.S. payrolls after employers cut 260,000 jobs in the first four months of the year. Results from the Blue Chip Economic Indicators survey released May 10 showed economists forecast payrolls will drop by an average of 25,000 a month this year.
``Economic theory is surprisingly unified on this; one-time tax'' adjustments ``do not affect permanent changes in spending behavior, and therefore should not have any effect on employment,'' said Christopher Low, chief economist at FTN Financial in New York. ``The fallacy in this reasoning is that it assumes the tax cut is ongoing.''
Recession Losses
During the country's last recession, which lasted from March 2001 to November 2001, payrolls declined by 181,000 a month on average. As the expansion resumed in December 2001, an average 47,000 jobs a month were lost for the next year.
Bush has presided over average payroll gains of 61,000 a month since he took office, compared with increases of 240,000 under President Bill Clinton. Bush's record is slightly stronger than his father's. George H.W. Bush oversaw an average of 54,000 more jobs a month.
Eisenhower was the last president to see a drop in payrolls in his final year, when the economy fell into a recession in 1960 following a steel-industry strike and tight monetary policy the previous year.
```To think the result'' of the tax rebates ``might be a relatively quick turn to strong job growth is a pipe dream,'' said Ken Goldstein, chief economist at the New York-based Conference Board.
To contact the reporters on this story: Brendan Murray in Washington at brmurray@bloomberg.net; |
