CBO Estimates That Unemployment Rate Will Be Down to 5.3% by 2014

The CBO (Congressional Budget Office) is, according to Wikipedia, a "government agency that provides economic data to Congress". The CBO is an independent and non-partisan agency.

The CBO releases their own projections, while the OMB (Office of Management and Budget) releases their own independent projections. The OMB's numbers are released from the White House, while the CBO's projections are considered to be independent of any political party.

The CBO releases all sorts of interesting data and projections. Estimates of the impact of Obama's health care plan on the national deficit. Estimates of economic growth for the country going forward. Estimates of national unemployment levels going forward.

For this article, we'll focus on the organization's projections for the national unemployment rate, from now (2010) until 2020.

As we mentioned on this site a few weeks ago, the CBO doesn't expect that the national unemployment rate will drop below 9% until 2012.

To be more specific, the CBO estimates that the average unemployment rate for the nation will be 10.1% in 2010, and 9.5% in 2011.

Based on these projections, a few things become very clear:

1. The CBO is expecting that the unemployment rate will rise from its current level of 9.7%

2. The CBO is expecting a much slower rate of recovery in the job market compared to previous recessions

In 2012, the average unemployment rate in the country, according to the CBO, will be an eye-popping 8.0%. That's a full 3% above the "natural" unemployment rate in the country, a full three years after the "Great Recession" was thought to have "officially" ended (June of 2009).

The CBO goes on to estimate that the unemployment rate will drop to 6.3% in 2013, and 5.3% in 2014. From 2015-2020, they estimate, the national unemployment rate will hover right around 5%.

According to the CBO, there are some major reasons why the job market is expected to recover so slowly over the next 2-3 years. They include:

-output is expected to grow "fairly slowly" in this recovery, especially when compared to previous recessions

-average weekly hours have been dramatically pared back since the start of the Recession, meaning that many companies will first look to restore these numbers before deciding to hire additional workers

-many workers are going to have to be retrained and/or relocate in order to find new jobs, and this process will take time. The process of relocation will be made especially difficult by the dramatic decline in real estate values - many people are simply locked into their mortgages and can't move due to their homes being worth significantly less than what they paid for them

The "Great Recession" was thought to have started in December of 2007, meaning that the CBO is estimating that it will somewhere around 7 years for the job market to return to pre-recession levels.

In late 1982, the US economy was suffering mightily from the effects of stagflation (high inflation and low economic activity), causing the national unemployment rate to soar as high as 10.8% (November, December of 1982). It took approximately 5 1/2 years from that time to return to "normal" levels of unemployment (low 5% range).

Many economists feel as though the national unemployment rate in the United States will peak in late 2010. If we follow the '80s as a blueprint, then we will return to "normal" levels of unemployment sometime in 2016.

All of this is assuming that the United States (and by extension, the world) can avoid any number of gremlins that could push any economic recovery off the rails. Any number of events could conspire to derail a global economic recovery, including a major sovereign debt default or a double-dip recession.

The US economy recovered fairly quickly in the '80s, and yet it still took 5 1/2 years for the national unemployment rate to return to "normal" levels from its peak. How long will it take this decade if things don't go as smoothly?

Source: CBO.gov - "The Economic Outlook"

Historical Unemployment Rates

Wikipedia - "Congressional Budget Office"

Filed under: The Economic Meltdown