I would guess that the State Dept did not begin counting the # of passports in circulation at all until 1989. They appear to have just added up the cumulative # of passports issued starting at that point and ignored all existing passports. Otherwise their numbers make zero sense at all.

No doubt the number of passports has increased sharply in the last few years though, due to the new rules. About 50% of intl travel from the US is to Mexico and Canada, neither of which required passports in the past.