Bush lowers job-growth forecast
December 17, 2004
WASHINGTON – The Bush administration, after being ridiculed by Democrats for an overly optimistic jobs forecast this year, on Friday significantly reduced its forecast for new jobs that will be created in 2005. It slightly boosted its estimate for overall economic growth.
In its new economic outlook, the administration predicted the economy will grow by 3.5 percent next year and will create an additional 2.1 million jobs.
A year ago, the administration was forecasting 3.6 million jobs would be created in 2005 after 2.6 million this year.
Democrats called the forecast for 2004 overly optimistic, an assertion that proved to be accurate. Through November, just 1.3 million jobs were created, half of the administration’s forecast.
The economy has struggled to create new jobs during the recovery from the 2001 recession. Businesses have been successful in boosting production with fewer workers.
A problem facing the administration with its 2004 forecast was that it was prepared in late November 2003 as part of the administration’s budget preparations but not released until early February when the budget was sent to Congress.
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In between, the jobs pictured darkened significantly with a string of weak monthly figures, thus making the administration’s forecast look even more optimistic.
Gregory Mankiw, the chairman of the president’s Council of Economic Advisers, told reporters the administration had decided to release the 2005 forecast in early December, when it was completed, rather than waiting for two months for it to be possibly overtaken by events.
“We thought this would minimize the confusion we saw last year by waiting until February,” Mankiw said.
Mankiw and other administration officials said the early release had nothing to do with speculation that Mankiw is planning on leaving his CEA post.
“I serve at the pleasure of the president,” Mankiw said, refusing to discuss his future plans.
Other officials said Friday that if Mankiw does decide to leave, a leading candidate under consideration to replace him is Ben Bernanke, currently serving as one of seven members of the Federal Reserve board.
Bernanke has also been mentioned as a top prospect to replace Fed Chairman Alan Greenspan, whose term ends in January 2006.
The administration said the overall economy as measured by the gross domestic product will grow by 3.5 percent next year and 3.4 percent in 2006. A year ago, the administration was forecasting growth at slightly lower rates of 3.4 percent for 2005 and 3.3 percent for 2006.
For the current year, which is almost over, the administration now sees the economy expanding, when measured from the fourth quarter of last year, by 3.9 percent, down from an expectation of 4 percent this time a year ago.
On inflation, the administration predicted that consumer prices will rise by 2 percent next year, down sharply from an expected 3.4 percent increase this year. Mankiw said the slowdown reflected the fact that energy prices are expected to be lower next year after jumping sharply in 2004.
Mankiw said the administration’s forecasts for economic growth, employment and inflation were well within the range of private sector forecasts.
Private analysts generally agreed with that assessment.
“On job growth, they are just slightly more optimistic than I am and they are well within the bounds of possibility,” said David Wyss, chief economist at Standard & Poor’s in New York.