When OMB Director Peter Orszag, Treasury Secretary Tim Geithner, and economic adviser Christina Romer appear before Congress today to testify on the state of the American economy today, bring the Kleenex. According to prepared remarks released by the White House, they’ll continue weeping over the burden they had in correcting a historic recession as a means to excuse the lack of job creation since taking office. They now say that the US won’t see any significant job creation until at least 2011, and that returning workers will drive the unemployment figures higher later this year:
GDP growth. For GDP, the forecast projects moderate growth of 3.0 percent (on a fourth-quarter-to-fourth-quarter basis) in 2010, followed by somewhat higher growth of 4.3 percent in both 2011 and 2012. Compared with the recoveries from other severe recessions, the projected growth is relatively modest, particularly in 2010. This reflects a combination of factors, including the limitations on monetary policy coming from the fact that interest rates cannot go below zero; the weakened state of households’ and firms’ balance sheets; the continuing caution of households and firms following the searing events of the past two years; and the weak condition of State and local government budgets.
Employment and unemployment. In terms of the labor market, the forecast projects average job growth of about 100,000 per month in 2010, about 200,000 per month in 2011, and about 250,000 per month in 2012. Typically following a recession, we see increases in productivity, temporary employment, and the length of the workweek before employment begins to recover. For the most part, developments in recent months have been following this pattern. Productivity growth has surged; temporary help employment has risen for 5 consecutive months; and the workweek has been generally rising. We expect to begin seeing job gains by sometime this spring.
Because of normal growth in the population and the fact that some workers are likely to reenter the labor force as the economy improves, it typically takes employment growth of somewhat over 100,000 per month to bring the unemployment rate down. Because we do not expect job growth substantially over 100,000 per month over the remainder of the year, we do not expect substantial further declines in unemployment this year. Indeed, the rate may rise slightly over the next few months as some workers return to the labor force, before beginning a steady downward trend. It is also worth noting that the productivity growth we have seen in the last three quarters is the fastest in nearly 50 years. This rapid growth in output per hour has allowed firms to raise production without hiring additional workers. This record pace of productivity growth almost certainly will not be maintained much longer, implying that further increases in output will require additions to the labor force.
Their prediction on unemployment? According to the released remarks, none of them will make a forecast on the unemployment figure for 2010, but the above hints that we’ll see it rise back into double digits in the near future. In 2011, the White House predicts that we’ll finish the year at 8.9%, less than a point below our current standing. By the end of 2012, the trio expects us to be at 7.9% — far above the average for either the Bush or Clinton administrations.
Assuming that they’re not sandbagging by setting expectations low, these numbers will be a disaster for Obama and the Democrats. They still want to blame the Bush administration for the recession, but the recovery is what will concern most Americans. The chart I ran two months ago shows that the US has never taken this long to generate new jobs in any of its post-war recessions:
Furthermore, generating 100,000 new jobs a month (presumably net) may not be enough to keep up with population growth, let alone reduce the unemployment rate. Generally speaking, the economy has to generate somewhere between 100K-125K jobs per month just to maintain pace with new entries into the job market. If the White House predicts that level as an average for 2010, then we’ll definitely head back into double digits, especially as the modest job creation encourages those discouraged workers back into the job pool.
