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Storytelling In The News: #117

Economists tell themselves more positive future stories

April 12, 2004

One swallow doesn't make a summer, but according to the Wall Street Journal apparently one positive employment report can cause economists to start themselves more positive stories about the future of the economy.

While Paul Krugman was warning in the New York Times that "one good month" does not constitute a trend, the Wall Street Journal reported that, since the positive March employment data emerged, economists are more hopeful about the outlook for hiring. Fifty-five economists lifted their forecasts for job creation, even though not enough to make a fundamental change the outlook for unemployment or suggest the economy is picking up steam.

Results of the economist survey

The 55 economists, 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.

The calculus 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.

Employment data is dirty data

Meanwhile Krugman reminds us not to jump to conclusions from the March data. During Clinton's eight years in office, the economy added 236,000 jobs per month. But that's just an average: a graph of monthly changes looks like an electrocardiogram. There were 23 months with 300,000 or more new jobs; in March 2000, the economy added 493,000 jobs. This tells us not to make too much of one month's data; payroll numbers are, as economists say, noisy. It also tells us that by past standards, March 2004 was nothing special.

And we should be seeing something special, because our economy should be on the rebound. Bad times are usually followed by big bouncebacks; for example, last year long-suffering Argentina had the fastest growth rate in the Western Hemisphere (8.7 percent!), not because of the excellence of its economic policies, but because it was recovering from a severe slump.

According to Krugman, America hasn't had an Argentine-level slump, but we have a lot to recover from. After three years of lousy job performance, we should be seeing very big employment gains — and even after last month's report, we're not. It would take about four years of reports as good as the one for March 2004 before jobs would be as easy to find as they were in January 2001.

Krugman hopes that the March numbers are just the beginning of a torrent of good news. But the straws in the wind aren't wildly encouraging. Weekly first claims for unemployment insurance are down — but they're still above the 2000 average, and job growth in 2000 barely kept up with population. Average weekly hours, sometimes a clue to future hiring, fell in March — in fact, they fell so much that total hours worked declined even as the work force increased.

Bottom line

The story that future economists tell is of course connected to their politics. Krugman is a Democrat, which makes him likelier to be careful about apparent good news pointing to a positive trend. On the other hand, Republicans, who have been desperately waiting for good news from the "jobless recovery" for so long, are more likely to see the March employment numbers as a sign of long overdue numbers.

As we survey the differing future stories of these world-class economists, we are reminded of Deirdre McCloskey's insight that economics is an art rather than a science and characterized by narrative.1/

1/ Knowledge and Persuasion in Economics by Deirdre N. McCloskey (Cambridge University Press, 1994)

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