Conspiracy theorists have had a field day trying to figure out just what President Bush’s advisers had in mind when they issued a projection for 2004 job growth that appears far too high given recent economic trends.
Almost since the moment the projections were issued in the annual report of the White House Council of Economic Advisers Feb. 9, administration officials have been scrambling to explain — and then distance themselves from — the numbers.
By this week the numbers flap had ballooned into a full-fledged political issue, weakening White House credibility on an issue that is likely to top the agenda in this year’s presidential election.
“The White House is put in a very awkward position,” said Lawrence Jacobs, a political science professor at the University of Minnesota. “I think they are in a no-win situation here.”
If the administration stands by its projection that the economy will create at least 2.6 million jobs this year, it opens itself to criticism month after month as job growth falls short of the mark, as most forecasters expect, Jacobs said. Yet if the administration repudiates its projection or issues new, lower figures, Democrats will pounce.
“The Democrats have just been handed a great advertisement to run,” Jacobs said.
No wonder Treasury Secretary John Snow and other top Republican leaders have been walking on eggshells around the politically volatile jobs number in recent days.
Even Gregory Mankiw, who as chairman of the CEA was responsible for the report that included the figure, no longer was willing to stand behind it less than 10 days after its publication.
"We don't have a projection today,” he said in an interview with Reuters Wednesday. “It will be months before we sit down and go through that exercise again.”
Bush himself, when asked about the job projection, stayed away from the details, saying only, "I think the economy's growing, and I think it's going to get stronger.”
But Marc Racicot, chairman of Bush’s re-election campaign, dismissed the projection as nothing more than a “theoretical discussion by an economist” — even though it was contained in a White House report that is submitted to Congress and required by law.
Even if the projections from Mankiw’s council were frozen in early December, before the latest disappointing reports showing continued weak job growth, the figures are far more aggressive than even bullish analysts would have expected from a recovery that has strayed far from the historical script.
While most news reports refer to the council’s projection for 2.6 million net new jobs in 2004, a careful reading of the document leads to the conclusion that the council actually expected the economy to add 3.8 million jobs this year — an interpretation that was confirmed by the White House last week, before the issue turned into a major political liability.
The economy would have to add nearly 320,000 jobs a month on average to achieve that result, compared with the 166,000 projected by forecasters on average and just 73,000 a month created over the past five months.
Diane Swonk, chief economist of Bank One, said the forecast “seemed extremely aggressive, and I’ve been called a tireless bull.”
“The jobs are out there, but they have yet to materialize,” she said. “Yeah, they will get there eventually, but you don’t want to promise more than you can deliver.”
Of course the loss of jobs under the Bush administration is already a hot-button issue in the presidential election campaign, giving rise to one of the leading theories on how the council reached its conclusion on job growth.
Critics of the administration have called it a bit suspicious that the employment number printed in the annual report, 132.7 million, is conveniently higher than the 132.5 million who were employed when Bush took office. Unless the economy adds at least 2.3 million jobs by the end of the year, Bush will go down as the first president since Hoover to preside over a four-year term in which total employment fell.
Other analysts are more charitable, saying the council forecast must have been a mistake, based on a mistaken reading of historical job growth trends in recoveries. Because otherwise why would the Bush administration set the bar so high that even a year of solid job growth could look like a failure?
But the idea that the council was unaware of the potential political ramifications of its report seems hard to believe for analysts familiar with both the ways of Washington and with the Bush administration’s famous ability to control its message.
“I would be surprised if they just put this out without anybody looking at it,” said John Silvia, chief economist for Wachovia Securities, who formerly served on the staff of Congress’ Joint Economic Committee. Presumably such a prominent report in an election year would have been vetted by White House political strategists as well as top administration officials including Snow.
Silvia has been arguing for months that structural changes including higher productivity and the offshoring of service jobs mean the economy will not create jobs at the same rate as in past expansions.
“We have a lot of people who are structurally unemployed,” he said. “I’m sure an economist of Mankiw’s stature knows darn well there has been structural change.”
He pointed out that the unemployment rate for workers with at least a bachelor’s degree is only 2.9 percent, while the rate for high school dropouts is 8.8 percent.
Federal Reserve Chairman Alan Greenspan made much the same point in a speech Friday, pointing out that nearly 2 million Americans have been unemployed for more than a year.
While the past two weeks have seen an exercise in “numerology,” as one commentator put it, the lasting impact is likely to be felt in the potentially critical area of administration credibility.
“The administration has clearly got a developing liability in terms of credibility,” said Jacobs, the political science professor. “It’s not any one of these issues that is a problem – it’s an accumulation.”
He pointed to the issue of weapons of mass destruction in Iraq, a dramatic increase in the cost of new Medicare drug benefits, the growing budget deficit and renewed questions about President Bush’s military service.
As the election season gets into full swing, Jacobs predicted Democrats would begin hammering at Bush’s credibility much as Republicans hammered away at President Clinton for years over the issue of Whitewater.
In a taste of things to come, Senate minority leader Tom Daschle and six other Senate Democrats sent a letter to President Bush this week, asking him “to provide a meaningful jobs prediction that all Americans — including your own cabinet — would find credible.”
Democratic presidential front-runner John Kerry was quick to pounce on the political misstep.
"Now they're already walking backwards on their own predictions," Kerry said at a campaign stop. "What it says to me is they don't know what they're talking about when it comes to economic policy.”