The great American job machine has started firing again. But don't expect it to zoom ahead any time soon.
Despite real growth in the economy at a 7.2 percent annual rate in the summer quarter, most economists see only a gradual reduction in unemployment in the months leading up to the 2004 fall election.
"Better, but still tough," says Allen Sinai, chief economist of Decision Economics Inc., an economic consulting firm in Boston.
The creation of more new jobs should cheer up those seeking work - and perhaps even help President Bush keep his job in the White House. But there is concern the nation's job machine may have lost some of its zip - permanently - because of changing business practices.
The latest statistics are encouraging. In October, the economy added 126,000 new jobs, the Labor Department reported Friday. September's increase in private-sector payroll jobs was revised up to 125,000.
But earlier last week, Challenger, Gray & Christmas, Inc. noted that employers announced plans to eliminate 171,874 jobs in October, the largest monthly job cuts in a year. So far this year, announced job cuts exceed 1 million, a rate close to that for the last two years, the international outplacement firm finds.
Large layoffs plus solid economic growth mostly explain a big jump in productivity in the third quarter. Output per man-hour rose at an 8.1 percent rate, the best since early 2002.
For the unemployed, this isn't good news - at least in the short run. It means business needs fewer new workers to tackle an upturn in orders. As a result, most economists expect only a modest drop in the unemployment rate by election time.
Mr. Sinai estimates 5.7 percent of the labor force will be jobless at mid-2004, down from 6 percent in October.
Cynthia Latta, an economist at Global Insight, a consulting firm in Waltham, Mass., is less hopeful. She sees a 5.8 percent jobless rate by the end of 2004.
One reason for this slow decline is that the economy must create at least 150,000 net new jobs each month to absorb the new workers joining the labor force as the population grows.
Another reason is what Lawrence Mishel, president of the Economic Policy Institute (EPI), a liberal think tank in Washington, calls the "missing labor force."
In addition to the 8.8 million officially counted as unemployed, another 1.6 million people have withdrawn from the labor force. About 462,000 are so discouraged by poor job prospects, they no longer seek work. As the economy picks up and help-wanted ads multiply, some of those workers may again look for jobs.
Most economists expect annual economic growth to retreat from the third quarter's sizzling rate to about 4 percent. "The US and the global economy have turned from low growth to a significantly higher rate," Sinai says.
Economists debate whether the growth and job outlook are good enough to boost Mr. Bush's reelection prospects.
Sinai says Bush will be helped, especially since, unlike his father, he "harps on jobs and more jobs all the time." His tax cuts were billed as job creating. And the Federal Reserve has clearly indicated it will maintain an easy monetary policy until the job market is bustling.
Bringing zest to the scene, the value of US corporate stock has gained about $4 trillion since an October 2002 trough.
If stock prices rise "solidly" throughout the first quarter of 2004, Bush's chances of reelection are "probably fairly good," maintains Mark Vitner, an economist at Wachovia Bank. If the market declines, he's likely to be "in real trouble."
But Mr. Mishel of the EPI says the view that the economic issue is going away for the president is "wishful thinking."
"Income and wages are still depressed," he says. "People are still vulnerable to job loss. They won't experience the recovery the Republicans talk about."
EPI maintains a site on the Web (jobwatch.org) that each month compares the number of new jobs actually created with the number projected by the president's Council of Economic Advisers when it was selling the tax cuts to Congress and the public. Last February, the CEA said the cuts would mean 344,000 new jobs per month starting in mid-2003. Through October, new jobs are 995,000 short of the original CEA projection. Last month, Treasury Secretary John Snow lowered the bar to 2 million new jobs by election time - about 166,000 a month.
Democrats say the tax cuts were badly designed to get the largest job boost possible for the lost amount of revenues.
Sinai finds a different explanation. He sees "structural changes" in the economy that may have weakened its job- creating zip.
Business, for example, is doing more outsourcing of service jobs to places like China and India. As more sales are made over the Internet, fewer clerks are needed in the stores. With the costs of health insurance and other nonwage costs rising fast, companies are reluctant to hire more workers as business increases. They prefer to work current employees harder and longer. It's cheaper.
In the third quarter, weekly hours worked rose 0.7 percent.
Historically, growth in the number of jobs in the private sector has closely tracked growth in gross domestic product, notes Mickey Levy, chief economist of Banc of America Securities in New York.
The current expansion has been relatively weak. And in the last two quarters, business has liquidated inventory rather than, as usual in a recovery, building it up. That can't continue, Levy says. So business will have to start hiring. That means "moderate job gains" ahead.