Don't Expect a "Normal" Unemployment Rate Anytime Soon

CBO Unemployment Projection graph - 1972 - 2022The CBO (Congressional Budget Office) recently released their ten year outlook for the US economy and federal budget. The report, titled "The Budget and Economic Outlook: Fiscal Years 2012 to 2022", can be accessed by clicking the link at the bottom of this article.

The CBO says plenty about the federal budget, but I'd like to skip ahead to their economic outlook.

To start, the CBO is forecasting slow economic growth over the next two years. Their estimate for real GDP growth in 2012 is 2.0%, and just 1.1% in 2013.

There has been much made about the drop in the national unemployment rate over the past number of months. If you haven't been following, the US national unemployment rate has dropped to 8.3% in recent months, after spending much of 2011 hovering around the 9.0% mark.

According to the CBO, you shouldn't get too excited about the recent drop. The CBO estimates that the national unemployment rate will "gradually decline" to 7% (well above the optimal rate for the economy) by the end of 2015, before finally dropping to 5.5% by the end of 2017. That's right - the CBO is estimating that we are looking at SIX MORE YEARS before the unemployment rate drops to 5.5%.

The CBO also predicts that inflation and interest rates will remain low over the near-term.

CBO Unemployment Projection graph - February 2012

The CBO admits that there are many factors that could dramatically impact their estimates (Europe, changes in US fiscal policy, etc).

Source: - The Budget and Economic Outlook: Fiscal Years 2012-2022

Filed under: The Economic Meltdown

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