JIM LEHRER: We look at today's economic numbers with: Lynn Reaser, chief economist for Bank of America Capital Management; Maria Fiorini Ramirez, a Wall Street economist in New York who runs her own consulting firm; and William Spriggs, economist and director of research and public policy at the National Urban League Institute for Opportunity and Equality, a Washington-based research group.
Ms. Ramirez, President Bush said today it was his tax cuts that caused the 7.2 percent jump in the Gross National Product, in other words, the jump in the economic growth rate. Do you agree with him?
MARIA FIORINI RAMIREZ: Well, I think that many things happen at the same time. It was the tax cut. It was the tax refunds. It was also the fact that businesses for a long time have not spent any money. In the second quarter we really got the first increase in business spending. And in the third quarter we got another huge increase so you put a lot of these things together and what it boiled down to is a number that was not too far from expectations. I think most people were looking for 6 percent. So 7.2 percent was not far away from what was already priced into the market. I think that's why the markets do that much today.
JIM LEHRER: Lynn Reaser, how do you read this jump?
LYNN REASER: We believe the report was very positive. It was broad based. We saw consumer spending up. Increases in capital spending, as Maria suggested, increases in housing and also exports so it appears that the economy is finally coming to life.
JIM LEHRER: So it isn't a one-shot deal. You think this shows real, real staying power in the growth of the economy right now?
LYNN REASER: Seven percent is probably not sustainable but 4 percent probably is as we see the continued impact of low interest rates, a reviving economy around the world, rising stock prices and rising home prices and also improving business confidence.
JIM LEHRER: Mr. Spriggs, how do you read these numbers?
WILLIAM SPRIGGS: Well, I'm a little concerned about the numbers. We had very good growth in the second quarter. Now we had this phenomenal growth in the third quarter but we saw no job growth take place in either quarter. And when you have a growth rate of 7.2 percent and don't see jobs appearing, it's a real puzzle for economists. The last time we saw a job growth rate... an economic growth rate of 7.2 percent was 20 years ago, as you mentioned. In 1984, we were coming out of recession. And we saw tremendous job growth rate in that quarter, over two million jobs, so I think we all have to be concerned that there's growth without jobs and we have to think why is that and how do we get jobs?
JIM LEHRER: Do you have an answer? Do you know why the growth is happening without jobs?
WILLIAM SPRIGGS: I don't know that anyone has a clear answer for this last quarter because the hours worked didn't go up. So it's not as if we all worked extra hours and had overtime go through the ceiling. I guess you could call it intensity. We worked much harder but that wouldn't be sustainable. That's a rather phenomenal intensity level for work. So I think we have to rethink our models. I think we could clearly say that the indicators we had, both the tax cut and interest rates, allowing people to refinance their debt, helped. But it's going to take something else and it may be that we have to think again about government spending directly on job creation.
JIM LEHRER: Ms. Ramirez, do you read it the same way on jobs that everything looks good except for that?
MARIA FIORINI RAMIREZ: Well, I think that businesses are spending a lot faster in adding more capacity, becoming more efficient, part- time workers. And they're really being constrained by the fact that the cost of running a business, via insurance costs, the health care costs, it's a lot more than it used to be. So the last thing that businesses are doing are adding full-time workers. I think that's going to be a problem going forward. And also I think that in past years a lot of the manufacturing jobs have been overseas and that diluted the strength coming out of recovery but now also some service jobs are going overseas.
So I think that the problems are going to be more magnified which is the reason why I think that job growth is going to be very modest going forward. It's not going to be 200,000 jobs per month at this stage of the recovery but if we get 100,000 per month let's say in the next six months or so we should be very happy with it because the world we live in is changing. Competition globally has changed and therefore job growth is not going to be as strong as it was in the past.
JIM LEHRER: Do you agree with that, Ms. Reaser, that there won't be this kind of job growth that could be -- should be expected with this kind of economic growth?
LYNN REASER: We believe that job growth will be gradual but will be coming forward. We saw the disconnect between the surge in output and drop in hours worked. Why? Because we had a major increase in productivity. That could only be very good news for the long term for this economy. It reflects some of the investments we made in the late '90s. Productivity will not continue at those rates and as a result we will see companies having to start to hire more workers. In fact already at the end of the third quarter we saw job growth start to occur.
JIM LEHRER: This is not something that concerns you as it does Mr. Spriggs?
LYNN REASER: Productivity growth is the ultimate source of value. It's allowing workers to see increases in their wages. It's allowing companies to see improvement in their profit margins. It will keep inflation down and productivity growth is indeed a very good positive for the economy even though it's slowed down growth in the very near term.
JIM LEHRER: Productivity growth, Mr. Spriggs, means that they have the same amount of workers but there's more output, right?
WILLIAM SPRIGGS: Yes. And that is a good thing. But that means that the economy has to grow even faster in order to get the new workers. So that's the puzzle. 7.2 percent is a very fast growth rate for the economy. So if you can do that without adding workers and again the quarter before that we had a growth rate of 3.3 percent, so you have two solid quarters and to lose 146,000 jobs, to have hours go down means that you'd have to have a tremendous growth rate in order to get the next set of workers added to the payroll. If we're only adding 180,000 jobs a month, that just compensates for the number of new workers who entered the labor force because of the population growth. So we really have to be able to do more than that.
JIM LEHRER: Still a big gap. Ms. Reaser, what about that?
LYNN REASER: We believe that job growth will be coming forward, that this is a delay but that companies are getting to the point where they will need to hire new workers. They can't just rely on these productivity gains. Productivity growth will be good but it won't be as good as we've seen in the last two quarters. So I think it's just a matter of timing before we see those jobs come down the pike.
JIM LEHRER: Ms. Ramirez, I want to come back to a point you made a moment ago. You said it was not a surprise that the stock market didn't react. At the beginning of today when the... when these numbers came out, it spiked, it went way up and then it settled back down. As I reported in the News Summary a moment ago, the NASDAQ even lost a few points. The Dow I think went up only 12 points. Why didn't the market go really... why didn't the market get excited about this?
MARIA FIORINI RAMIREZ: Well, I think, Jim, it's because the market has been doing so well lately. The merger announcement earlier in the week gave a lot of sort of strength to the financial sector. The market has done, you know, quite impressively in recent months on the expectation that the economy was going to be doing better and profits were going to be up. So third quarter numbers have been coming out. Profits have been better than expected. GDP growth has been stronger.
So I think that people are looking at these days when the market does really well, you know, it takes some profits. I think that that's pretty much what happened today. I think that it would have been disappointing if GDP growth would have been less than 5 percent. So I think that there's so much anticipation that we're in recovery. It's broad based.
I think that what's going to happen going forward that's going to create some jobs is inventory rebuilding. Normally when you go into a slowdown, inventories get weaker and weaker. And I think that even what contributed to growth this quarter was even more inventory pairing so I think that in the fourth quarter we're going to have some inventory rebuilding, which is going to last a few years. And I think with that to produce that, there's going to be some job growth.
So I do think that the stock market is always going to have an anticipation built into it. And it's going to be the disappointment that triggers a fall back so I think that we're in good shape as far as profits is concerned… are concerned. And I don't think really we're going to see a reversal going forward. I do fear that the expectations might be a little bit too bullish.
JIM LEHRER: I see. Lynn Reaser, how do you read the stock market's reaction today?
LYNN REASER: The stock market really expected pretty much a strong number so a little bit better was not really a startling up side shock. In terms of the market's focus now, this was a report, as you mentioned, for July through September, the market now wants to know what's happening in October, November, December. So it will now focus on what happens to those jobs numbers as reported next week and will look to see if the kind of growth that we're forecasting, around 4 percent, will in fact occur.
JIM LEHRER: Mr. Spriggs, just as a general guideline for lay people, how important should they consider the rise and fall of the stock market on a day like this? I mean, if the market... they're not experts and so everybody expected, "my, goodness, this is in 20 years, this and this and all the stuff that I reported." And then the market goes ummm and everybody says wait a minute. What is it we don't understand? What is it we don't understand?
WILLIAM SPRIGGS: The markets do discount information.
JIM LEHRER: Way ahead of time.
WILLIAM SPRIGGS: Way ahead of time. And so it's something that is well within expectations, then the markets aren't going to have fantastic reactions to it. I think we do have to be concerned that the bond market didn't think that this was some sort of good sign. And, again, we did this with a very huge deficit. So if we're going to have a deficit of this size without job growth, we do have to show some concern.
The economy is growing. That should help to reduce the deficit, but we know that we have some structural issues within the federal budget that may make the deficits go out for some time. And in the past when we've run deficits like this during a recession or during a period of no job growth, we've seen eventually those deficits spur jobs. You could sort of think, okay, we're willing to pay that price. If we continue with the deficits, then I think that the bond market won't show us the kind of confidence that interest rates can stay low.
JIM LEHRER: In general terms in a word, this should be seen today as good news though that the economy is doing better than many people expected it to be doing?
WILLIAM SPRIGGS: Well, I think we have to be very happy that we saw two quarters of business investment going forward. That means that, yes, there should be some pressure, we should have some expectation at some point we'll see some jobs come out of that. But if we continue to see what was else in the numbers, which is that wage and salary actually didn't go anywhere, that you can't see consumption continue to go somewhere when people aren't making any more money. We're not going to see growth there until we see the job growth.
JIM LEHRER: What caveats would you put to this, Ms. Reaser?
LYNN REASER: I think we will need to see that job growth. We have seen some signs. Temporary help has increased in the last five months. We did have one month in job gains. We think we'll see another one in October. And we've seen lay-offs subside at a lower level throughout October so I think we are at a turning point where this economy's recovery will start to feel real and we'll finally start to see those jobs created.
JIM LEHRER: Do you have any caveats, Ms. Ramirez, what to look for?
MARIA FIORINI RAMIREZ: Well, I think that we turned the point where things started getting better a few months ago. As far as the deficits, they look level. A lot of the counties that I talk to it seems like tax revenue is up. And I think that's a good indicator. I do think that the best of the sort of stimulus from low interest rate is really behind us but housing remains pretty strong. Barring any sort of unpredictable kind of events I think that we've turned the corner and things are better already.
I think that GDP growth in the fourth quarter will be pretty strong still -- maybe 4 or 5 percent or even better. And I think that it is sustainable next year but I do think that the base of economic growth has to be broader as it was in the third quarter in order for this to be sustainable through 2004 and 2005, and lastly the rest of the world is doing a little bit better. And that should help our exports quite a bit.
JIM LEHRER: Okay. Thank you all three very much.