See What I Mean?

June 10th, 2011 at 9:33 am

Just a quick follow up to the slow-growth post from last night.

The figure below shows an unemployment rate forecast, kindly provided by Mark Zandi of Moody’s Analytics.

Based on the type of relations I presented last night, this forecast clearly presumes above trend GDP growth, which in turn assumes current headwinds are largely temporary.  Let’s all hope that’s right.

But even if it is, the point here is that while the change is solidly headed in the right direction, the levels remain much too high.  Even at 8% unemployment, the job market won’t be providing ample opportunities to jobseekers nor put enough pressure on the wage growth of jobholders.

Source: Mark Zandi, Moody’s Analytics

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3 comments in reply to "See What I Mean?"

  1. jonathan says:

    A problem will be that the GOP’s solution will be tax cuts because that’s what Reagan did. They’ll shift from screaming about the deficit to proclaiming the gospel that tax cuts spur growth and that means all our problems go away no matter what they are. Never mind that Reagan lowered tax rates from 70% to 50% and then increased taxes every year after that.

    The other shoe is the people within the GOP who want to get rid of Medicare may then seize the notion that building up the deficit then requires ending Medicare and revamping Social Security.


  2. David R says:

    The term I have used is “technical recovery” meaning that the growth and lower unemployment that the U.S. has seen following the bottoming out of the recession is the result of natural recovery forces rather than sustained fiscal and monetary policy.

    http://dismalpoliticaleconomist.blogspot.com/2011/06/is-u-s-having-technical-recovery-rather.html

    If this is the case, then a technical recovery cannot be sustained on its own, it start to falter, a theory which is consistent with the data we are now seeing. If this is the case then contractionary fiscal policy will be a very bad thing for the economy, but that seems to be where the debt ceiling talks are going.


  3. TJ says:

    The “headwinds” I’ve heard mentioned aren’t going away any time soon. Japan’s not bouncing back quickly, oil prices are still around $100/bbl, and the European financial crisis can only be stalled, not cured. And we’ve probably got crappy harvests to look forward to.


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