If the U.S. unemployment rate ticks up to double digits again, don’t be surprised. In fact, it could revisit the recent high of 10.1 percent by next spring before drifting down and settling at 7 percent by the end of 2012.
That was the outlook offered by Gus Faucher, director of macroeconomics at Moody’s Analytics, as he led off a day-long program for business journalists at American University in Washington, D.C. Titled “What’s Next for the Economy in Your Town,” the workshop was presented by the Donald W. Reynolds National Center for Business Journalism, a nonprofit that aims to improve business reporting.
On a rainy, gloomy morning last week, Faucher walked us through the 2007-09 Great Recession and the still-young recovery.
“ ‘Recovery’ doesn’t mean the economy is good,” he said, “just that it’s expanding.” Of the 11 recessions since World War II, “this really is unprecedented, what we’ve been through,” he said, explaining that the 18-month-long Great Recession lasted nearly twice as long as the average recession of the last six decades. From start to finish, it showed greater declines in gross domestic product, industrial production and nonfarm employment than any of the others, even the tough recession of 1981-82.
And while most of the country — save Nevada — seemed to enter the recovery phase of the economic cycle in the spring, “it’s going to be a long, long climb back,” Faucher said.
That’s why he sees the unemployment rate rising to 10.1 percent — the high for the downturn, recorded in October 2009 — before dropping back to 9 percent by the end of 2011 and lower still by the end of 2012. The labor market is a so-called lagging indicator of economic growth, he reminded us: As the economy begins to improve, businesses hold off on hiring, demanding more of current workers until they’re certain better times are at hand. Meanwhile, laid-off workers who gave up looking for jobs as the recession dragged on, rejoin the applicant pool when they sense the turnaround. Their return pushes up the unemployment rate until the recovery becomes an economic expansion that can accommodate them too.
He said the U.S. needs to add 125,000 to 150,000 jobs each month just to keep pace with new entrants to the labor market, never mind finding work for the 8.5 million people who lost their jobs during the Great Recession. But while the layoffs have abated, too few new jobs are being created to push the unemployment rate below 9.5 percent. (He warned, too, that a falling unemployment rate might not be a positive sign if it merely masks the fact that laid-off workers have stopped actively looking for jobs.) On Friday, when the government releases its latest labor report, the unemployment rate for October is expected to be 9.6 percent, unchanged from September and August, according to Bloomberg News.
Faucher said a handful of states — including Michigan, Illinois, Louisiana and New Mexico — fell back into recession over the summer as a result of weaknesses in their job and housing markets. “We have seen some job gains, but it has petered out,” he said.
New York’s economy is in the recovery phase of the economic cycle, according to one slide Faucher displayed. So, too, are most upstate metro areas, including the Capital Region.
New peaks in employment — indicating the economy has moved from recovery to expansion — will come slowly for most of the country. In some pockets of California, Florida and Michigan, that means 2015. For the Capital Region, however, Faucher projects sometime in 2012.