The latest batch of disappointing US employment data highlights a gap between Wall Street's economic forecasts and the tough labour market facing more than eight million unemployed Americans. The disparity between economic models and real life also casts doubt on the reliability of predictions for strong economic growth in 2005, some analysts worry.
For over a year now, economists at leading investment firms have been saying that blockbuster job creation was just around the corner. But the economy has not delivered.
The January employment report released on Friday was no different. Median estimates converged around 190,000 new positions. In fact, only 146,000 turned up.
Furthermore, the employment data for the previous two months were revised lower, painting an even more mediocre picture of the job market. Such conditions have made unemployed workers discouraged, and prompted many to simply give up their job hunt.
"The labour force is shrinking," said Peter Morici, economics professor at the University of Maryland's Robert H. Smith School of Business, and one of the few forecasters who had the January number right.
"The economy is not creating enough good paying jobs, causing workers to quit looking for jobs altogether," he added.
At 65.8 percent, the adult labour force participation rate is at its lowest level since May 1988.
Underlying the divergence between Wall Street forecasts and Main Street are fundamental structural changes in the economy that have made forecasting more difficult, say analysts, including an exodus of manufacturing and construction jobs abroad.
American consumers' appetite for imported goods is also to blame. Apart from widening the trade deficit to record levels, the trend has spurred the transfer of jobs to countries like India and China.
Even more worrying, subdued employment trends are now sparking concerns that economic growth may fade. Consumers have been the primary driver of the latest burst of expansion, but might choose to reign in spending if they grow too worried about job security.
"The recent pace (of job growth) doesn't appear to be enough to generate a self-sustaining economic expansion," said Steven Wood, chief economist at Insight Economics.
US President George W. Bush's tax cut plan was supposed to generate around 5 million new jobs. In reality, less than half as many have been created so far in the recovery. And many of those only replaced the jobs lost in the last recession.
HISTORY NO LONGER A GUIDE: One major problem with forecasting is that it is based on past history. In previous recoveries of similar magnitude, analysts say the economy would be creating 350,000 or more jobs per month at this stage of the game.
But it seems many lessons from history no longer hold.
"The disappointments in the data have been due to forecasts that based on historic factors, and there's a bit of disconnect lately," said Parul Jain, deputy chief economist at Nomura Securities.
It must also be taken into account, Jain noted, that predicting what constitutes a minuscule change in employment either up or down is not easy considering the net job change accounts for such a small proportion of overall hirings and firings.
While many politicians talk about the "jobs of the future," few seem to know what industry might generate that sort of work.
In the late 1990s, the Internet and technology boom fuelled massive new employment. But it is not yet clear where the next burst of hiring will come from.
Education and health services, says Jain, offer some hope. Both sectors represent basic necessities that demographic data suggest will be sorely lacking in staff over the coming years.
Until then, economists will continue to scratch their heads trying to figure out how the world's largest economy can do a better job at accommodating those looking for work.