Friday, August 10, 2012

Looks Like Continuing Tough Sledding Ahead for The Economy and Employment

Inflation adjusted economic growth of ~3% or higher will be required to put a significant dent in the current 8.3% unemployment rate.

That's the simple effect of productivity improvements at an  annual 2% rate coupled with population growth of 1% annually. Hence, 3% growth is approximately the break-even point for getting the U.S. unemployment rate below 8% anytime soon.

With that in mind, the latest survey of economic conditions clearly signals more trouble ahead on the U.S. jobs front. Economists in Philly Fed Survey Lower Forecasts has the story:

"The outlook for the U.S. economy and labor markets is weaker this quarter than it was three months ago, according to a quarterly survey released Friday by the Federal Reserve Bank of Philadelphia.

According to the regional bank’s Survey of Professional Forecasters, real gross domestic product is expected to grow at only a 1.6% annual rate this quarter and 2.2% in the fourth quarter, down from 2.5% and 2.6% forecast three months ago.

The 48 forecasters surveyed also trimmed their view for the first and second quarters of 2013, with growth of 1.8% and 2.3%, compared with earlier projections of 2.6% and 2.7%.

Lower economic activity forecasts are leading to reduced expectations for job growth. The forecasters now see payroll gains averaging 125,000 per month this quarter and 135,300 in the fourth.

That hiring pace is down sharply from the gains of 170,000 and 172,600 expected in the second-quarter survey.

Slower hiring means the U.S. unemployment rate will remain above 8% until the second quarter of 2013. In the previous forecasts, the economists thought the rate would fall below 8% by the fourth quarter of this year.

The more sober tone of the latest Philly Fed survey highlights the challenges facing policymakers at the Fed. Economic growth is too anemic to provide enough jobs for those who want them.

The Philly Fed survey, however, shows inflation shouldn’t be a concern for years to come, which should give the Fed time to focus on the labor markets. The results show yearly inflation, as measured by the consumer price index, will end 2012 at 1.8%, down from 2.3% projected in the last survey. Inflation is expected to edge up to 2.2% in 2013, up from 2.1%, but still within the Fed’s tolerance."

Summing Up

Things are tough and expected to stay that way for some considerable period of time.

Unfortunately, that prediction makes sense to me and in fact, could be on the optimistic side.

For a change, let's all hope that we get at least a modest surprise to the upside sometime soon. 

Thanks. Bob.

No comments:

Post a Comment