"Drawing on a string of improved economic data, advisers to President Obama have updated their forecasts in recent days and now project that the economy will create two million jobs this year if stimulus measures are extended, which could reduce the unemployment rate to about 8 percent by year’s end.
Alan B. Krueger, chairman of the president’s Council of Economic Advisers, confirmed the revised projection for the economic figure that is the most important one to Mr. Obama’s re-election prospects.
Mr. Krueger said the forecast was updated because the projection that will be published in the president’s annual budget, to be released on Monday, was already “stale and out of date.”
The budget will project an average unemployment rate of 8.9 percent for 2012 and 8.6 percent for next year, based on economic conditions that prevailed in mid-November. But unemployment in January surprisingly dropped to 8.3 percent, for the fifth straight monthly decline, suggesting a downward trend that would have to reverse sharply to produce an annual average of 8.9 percent.
Since the initial forecast last November, Mr. Krueger said, “we learned that the unemployment rate has fallen by an impressive 0.8 percentage point over the last six months and other job market indicators have improved.”
He added, “Private sector forecasters have shaved about half a percentage point from their 2012 unemployment rate forecast in response to the improvement in the job market since we made our forecast.”. . .
For the White House, the improved forecast since November recalls the Obama economic team’s opposite experience four years ago — a miscalculation then that has haunted the administration politically ever since. When Mr. Obama took office in January 2009, his advisers did not update the projections they made the previous November — when few economists knew how severe the recession actually was becoming.
The administration said then that unemployment would peak at 8 percent if Congress passed Mr. Obama’s two-year stimulus package. Congress did, but — as Republicans often recall — unemployment peaked at 10 percent and has inched down slowly."
Confused yet about what to expect the reported unemployment rate to be in the near, medium and longer term? If so, we provide clarity hereinbelow.
The essential variables in the calculation are the expected monthly rate of job creation and the targeted unemployment rate at a future point in time.
After assumptions concerning those critical variables are made, the calculator will inform what the unemployment rate will be at any point along the timeline.
Here's what the article says about the long road ahead:
"There’s still a long slog ahead for the unemployed in America. Jobs growth has started picking up. But even at a rate of 250,000 a month, a hair above January’s figure, full employment may not be reached until 2020. A new Breakingviews calculator shows how a faster or slower rate of job creation changes that picture.
The important headline variable is the jobs growth reported in the U.S. monthly employment report - the stronger, the better. But a few other factors also matter when looking ahead. One is population growth, and another is how quickly the labor participation rate increases toward a more typical level. That’s the percentage of the population defined as either working or looking for work.
Since the recent recession began, millions of workers have become discouraged and temporarily given up on finding a job. The labor participation rate has declined from 66.4 percent in 2007 to 63.7 percent in January. Suppose participation recovers to that 2007 level by January 2020. This trend coupled with population growth at the average rate seen between 2003 and January this year would call for almost 200,000 new jobs a month just to hold the unemployment rate - 8.3 percent as of January - steady.
Then there’s the question of what level of joblessness reflects, essentially, full employment, since there will always be people between jobs. The calculator allows this input, as well as the other key ones, to be changed, but starts out assuming that 5 percent unemployment is the target.
With these assumptions, full employment would only be reached again in America in early 2020. If the monthly job creation rate jumped to 300,000, that date would be brought forward nearly four years."
In other words, we have years to go before we return to what used to be "normal." In all likelihood, getting the unemployment rate down to 5% will take many more years. For that matter, it will also take several years to get to a 7% or 6% rate as well.
Of course, smaller government and more private sector support by that smaller government would accelerate the lengthy process ahead, no matter who sits in the White House the next four years.