ECONOMISTS’ QUANDARY : Forecasting Is as Much Art as Science

The task of gauging the future of the economy and even not-so-distant past looked more like a roll of the dice Friday than a scientific exercise.

The point was driven home when the Labor Department reported a 705,000 gain in payroll employment in February--about twice as high as economists expected.

“This was a month when everyone missed the boat,” said Joel Prakken, economist at the St. Louis firm Laurence Meyer & Associates Inc.

The sharp rise in payrolls last month more than offset the loss of 188,000 jobs in January, when a blizzard temporarily forced the closure of stores, factories and government offices in the Eastern United States.

Forecasting the monthly payrolls numbers and other economic indicators is never easy, but the task this month was complicated by the factors in January.

The events that skewed the economy at the opening of the year led to doom-and-gloom forecasts for 1996, but it was never clear whether the effect would be temporary.

The February figures showed that the economy had shaken off the effect of the partial government shutdown and the January blizzards.

The biggest gain in February occurred in service industries, where payrolls jumped by 552,000. The return of teachers to work after the reopening of schools shut by the blizzard helped swell the February total.

Both construction and manufacturing payrolls also rose last month.

The job growth was hailed by the Clinton administration as good news for the economy, but it prompted a blood bath in stock and bond markets, where the surprisingly strong figure dashed hopes for more interest rate cuts.

“It has really been a forecasters’ nightmare,” said Steve Ricchiuto, senior financial economist at Barclays de Zoete Wedd Government Securities Inc. “In order to have forecast February right, you would have had to know completely what distorted January.”

Ricchiuto said that even the Labor Department, which compiles the report, did not have a handle on the varying factors at play in January’s payroll decline when it was first reported.

Despite the inaccurate estimates, traders on Wall Street, gripped by an atmosphere of fear and uncertainty, did not appear to be blaming their economists.

“I think most people understand that there was a wide range of estimates,” said one bond trader. “Any way you slice it, this number was a blockbuster.”