Economists say major job growth is unlikely
Treasury Secretary Henry Paulson’s prediction that tax rebates would create 500,000 new jobs this year may come up short as the effect 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, President 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 in a Bloomberg News survey was for an increase of 158,500 jobs from the stimulus package. Nine other respondents declined to offer a forecast, either doubting there would be any increase in payrolls or judging that the effect was impossible to project with any accuracy.
Paulson has said that more than $100 billion of the $168-billion stimulus plan 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.”
Ethan Harris, chief U.S. economist at Lehman Bros. 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 that officials expect the U.S. unemployment rate will rise as the housing slump deepens and consumers rein in spending. Policymakers anticipate the rate will rise to 5.5% to 5.7% in the final quarter of 2008 from 5% in April.
Administration officials base their forecast on the expectation of a jolt to consumer spending, which accounts for about 70% 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, Pa. “If we get a tenth of that, I would be happy.”
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.”