Recovery Soon to Lose "Jobless" Label

Wednesday, February 24, 2010


The expansion of the U.S. economy is on track for a resumption of job gains in the near term and sustained growth over the next two years that will slightly exceed the economy’s trend pace, according to a report recently released by The National Association for Business Economics (NABE). NABE panelists characterize the outlook as largely a traditional economic recovery—with sizable gains in discretionary spending by businesses and households—though still restrained by past wealth losses and excessive indebtedness.

“We see a healthy expansion under way, although it will take time to reduce economic slack and repair damaged balance sheets,” said NABE President Lynn Reaser, chief economist at Point Loma Nazarene University.

The NABE forecast panel expects the economic recovery to remain firmly on track. Real GDP growth of 3.1 percent is projected over the four quarters of 2010, nearly identical to last November’s prediction of 3.2 percent. That pace is also expected for 2011, comparing favorably with the panel’s 2.7 percent assessment of the economy’s underlying trend.

NABE panelists are more optimistic in predicting the economy is already strong enough to begin creating jobs in the first quarter, compared to November's forecast of no net change in employment. The median forecast of the survey is for an average monthly increase of 50,000 jobs in the January through March period. The survey expects the jobless rate to be at a still high 9.6% in the final three months of 2010, even as around 100,000 jobs are created on average each month this year.

When asked to qualitatively characterize the economic recovery, panelists ascribed to no dominant view but suggested a variety of characterizations. The most popular view, by a small margin, describes the outlook as a traditional economic expansion in its early phase, with above-trend growth and gradually firming inflationary pressures. Only nine of the panelists firmly hold this position, however. Many NABE panelists fear that financial headwinds will hold growth short of what might typically be expected. Very few foresee a “stagflation” scenario— blending of slow growth and high inflation—with none regarding this scenario as very likely.

While “financial headwinds” are expected to remain problematic, they are also likely to abate. Specifically, bank lending is expected to become less restrictive over the course of 2010, as bank earnings and economic conditions improve, according to 70 percent of respondents. Thirty percent, alternatively, believe conditions will remain restrictive due to regulatory guidance, capital pressures and a general climate of risk aversion.