Job gains recall '90s slump, recovery


IS IT April 1994 all over again? Some economists argue that we're in a Groundhog Decade, that we're reliving the 1990s and that there are spirits to be lifted, dollars to be made and a president to be re-elected if only we could figure this out.

Prudential's Edward Yardeni, perhaps the leading purveyor of the do-over theory, has laid it all out.

Both decades suffered through early "jobless recoveries," he notes, in which the economy boosted production of goods and services without adding employment.

Both jobless recoveries came after financial smash-ups -- the 1980s real estate crash and the 1990s stock collapse. Both also featured, in their early phases, a weakening dollar, sharply lower interest rates, a George Bush in the White House and U.S troops fighting Saddam Hussein in Iraq.

The 1990s recovery eventually overcame its jobless stretch and cruised into a commercial boom that created 20 million jobs and saw the Dow Jones industrial average triple.

And the 2000s recovery? For believers in deja voodoo, Friday's employment report filled another blank in the positive, paint-by-number picture of a repeat.

The economy added 308,000 jobs in March, said the government's payroll survey. That's the biggest monthly pop in nearly four years and more than twice what all but the most optimistic seers had called for.

"A couple weeks ago I wrote that any number that didn't satisfy my forecast was just bad data," says Yardeni, one of the optimists. "But I've never been satisfied this quickly."

And Yardeni believes that even the cheery 308,000 result may understate things. During the 1990s recovery the government's initial employment reports missed an average of 50,000 new jobs each month, Yardeni says. He expects the March reading to be revised upward.

(The government's payroll-based employment count is considered a better economic indicator than the phone survey that produces the unemployment rate. Reported unemployment was essentially unchanged at 5.7 percent in March.)

Another optimist is Wachovia's Mark Vitner. Before Friday's jobs report Vitner was almost apologetic about his rosy, out-on-a-limb forecast.

Predicting the employment figure "was never easy and has been particularly difficult of late," he wrote a week ago. "Nevertheless, when we put pencil to paper we get a net gain of 225,000 new jobs."

Don't blame me, blame the pencil, would have been his excuse. But he didn't need it.

On average analysts expected the economy to have added only about 122,000 jobs last month after tallying increases of just 46,000 in February, 159,000 in January and 8,000 in December.

Last month's reported spurt of 308,000 jobs, Vitner said on Friday, "is a pretty impressive number because not only did we see strong gains in employment during the month of March, but the gains were very broad-based. Nearly every industry saw an increase."

In expecting healthy results, believers such as Yardeni and Vitner had noted a decline in jobless claims, rises in help-wanted ads and corporate profits, robust output growth and other indicators that belied the lackluster jobs dispatches.

But Vitner saw something else. Hang onto your pocket protector; we're about to get geeky here. But it's worthwhile because Vitner seems to have discovered something profound about the nation's economic vital signs that neither Wall Street nor the White House has figured out.

A week ago he noticed a large increase in the government's personal-income estimates for the second half of 2003 -- a period for which the employment ledger showed almost no job growth. Either those working got huge raises, Vitner reasoned, or job growth was much better than reported.

Turns out the income report relied on precise job-count records based on third-quarter payroll taxes, Vitner says and Commerce Department economist Terri Davenport confirms. But these more-precise payroll records haven't been fully incorporated into the official employment reports yet, Vitner says.

The upshot: He figures the economy added 500,000 more jobs in last year's second half than the government says it did.

And, he adds, "I think the jobless phase of the recovery is now behind us. I think we're going to see more good news on the employment front."

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