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  • High Unemployment Through Distant Future Under Current Recovery Rate


    Today’s Wall Street Journal has some bad news that most Americans are already painfully aware of. President Barack Obama’s recovery is plodding along at a snail’s pace:

    Two years ago, officials said, the worst recession since the Great Depression ended. The stumbling recovery has also proven to be the worst since the economic disaster of the 1930s.

    Across a wide range of measures—employment growth, unemployment levels, bank lending, economic output, income growth, home prices and household expectations for financial well-being—the economy’s improvement since the recession’s end in June 2009 has been the worst, or one of the worst, since the government started tracking these trends after World War II.

    In a new paper, The Heritage Foundation’s James Sherk confirms the bad news and writes that if economic growth continues at the 2003–2007 rate of expansion, unemployment will not return to pre-recession levels until 2018. Sherk paints a picture of where the dismal unemployment numbers stand:

    The recession officially ended in June 2009, but payroll employment remains 6.9 million jobs below its December 2007 peak. The average unemployed worker has been without work for 39.7 weeks (nine months)—the longest since the government began keeping track in 1948.

    This is the weakest recovery of the post–World War II era. In past recessions, employment fully recovered within two to three years. As of May 2011—three and a half years after the recession’s onset—payroll employment remains 5 percent below pre-recession levels. Unemployment stands at 9.1 percent.

    Sherk also notes that a slow recovery is likely and breaks down what the unemployment rate could look like under several scenarios. At an average of 260,000 net jobs added per month, unemployment will not return to its natural rate until August 2014. At an average of 216,000 new jobs per month, it will take until October 2015 to return to normal. But, Sherk warns:

    These are optimistic assumptions. The late 1990s was a period of unusually strong economic growth. During the 2003–2007 expansion, employers added an average of 176,000 jobs per month. If the recovery takes that more recent pace, unemployment will not return to normal rates until January 2018.

    On Friday, the Department of Labor will release its monthly jobs report. Hopefully the news is better than last month, which saw an unemployment rate that climbed to 9.1 percent as the economy created only 54,000 new jobs. Meanwhile, the labor force participation rate remained flat at 64.2 percent, an all-time low for the fifth straight month.

    Unfortunately, those numbers aren’t indicative of an economy moving into high gear — and they foretell depressingly high unemployment into the distant future. Sherk writes:

    Over the past year, employment has grown by an average of just 122,000 jobs per month. If job growth continues at this rate, then the unemployment rate in January 2021 would stand at 7.4 percent. At the current rate of recovery, high unemployment will become the new normal.

    Posted in Economics [slideshow_deploy]

    3 Responses to High Unemployment Through Distant Future Under Current Recovery Rate

    1. Kevin H says:

      The recovery is inching along, yet conservatives are pushing for large, immediate spending cuts – which is exactly the opposite of what is needed. There shodul be no immediate spending cuts and tax increases until recovery is on stronger footing. To do so will just mean longer and slower recovery.

      • Andrew M says:

        There's always an opportunity cost. Tax revenue not spent by the government will be spent or saved by the individuals and businesses. Why should the government be wiser in directing those funds than the collective actions of millions? Even savings will be a boost to banks and further entice them to begin loaning funds. Deficit spending has to be financed somehow and that means money that could have been invested elsewhere goes to purchase treasuries. Then of course there's the sticky problem of paying off that debt.

      • Matt Campbell says:

        While spending is an important driver of consumption, federal spending is incredibly wasteful and inefficient, effectively becoming a tax upon the economy. Keynesian Economics has been thoroughly discredited for 30+ years. How, in the face of the dismal failure of the HUGE stimulus plan can one really try to sell this.

        Immediate budget cuts would be an immediate boon to the economic recovery. Couple with a stable tax and regulatory policies, which are the necessary conditions required in order to develop Business Plans. Right now, every company in the country is held back by the uncertainty injected when Mr. Obama speaks of tax increases, new regulations, or planning for the unknown costs associated with the Healthcare Plan. It doesn't matte that he hasn't raised taxes. It matters that the indecision leaves businesses unable to make substantive plans. What those in government don't understand, is that without the ability to make a 5 year plan, where every variable is, at least considered to be, known to a reasonable degree of certainty, there is nothing but waiting, and very short term planning. No company makes significant hiring or expansion decisions with a short-term horizon.

        If you don't believe me, create and push a plan for a new product, new facility, or new hires, but leave every variable, or even 20% of them blank, or filled in with widely varying ranges for items effected by taxes, Healthcare, and regulatory change/uncertainty, and see what response you get. You will be lucky to still have a job and most likely tasked to find short-term cost savings elsewhere, while the business just holds on until all those variables become known, understood, and stable. And, it really makes no difference if that business is making buckets of money.

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