Mar 31, 2010 - Economy, From Other Members    Comments Off

Future unemployment

The president of the Atlanta Fed (Dennis Lockhart) delivered a speech titled Prospects for Sustained Recovery and Employment Gains. On recovery:

Views about the economic outlook fall roughly into two narratives. The more optimistic scenario is a V-shaped bounce back from severe recession. This has been the historic experience for the most part. In this scenario, growth exceeds the underlying long-term potential of the economy for a number of quarters, and unemployment declines at a steady pace.

By contrast, the second scenario is a relatively modest recovery, with slow reduction of unemployment. Various headwinds hold back GDP growth. They include (1) a banking sector that is slow to expand credit in part because of weak loan demand and commercial real estate problems, (2) a weak state and local public sector that is adjusting to fiscal pressures by cutting expenditures and employees, (3) as referenced earlier, a housing sector that is slow to stabilize, and (4) an extremely cautious business sector as regards investment and hiring.

The real brake on this recovery is (4) because of future cost uncertainty added by government legislation. Next up – Cap & Tax. Companies will invest in new equipment that will improve productivity rather than hire new or rehire employees.

On unemployment:

Looking forward, the consensus forecast for March is that the economy will add 200,000 new jobs. That number includes a boost from temporary government hiring for the census.

However, according to an Atlanta Fed estimate, we need to add about that number to payrolls each month for the next year to bring unemployment down a full percentage point. This estimate assumes that the growth in the labor force stays in line with the growth in the population.

In other words, still projecting a very slow recovery.

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