James Pethokoukis

Politics and policy from inside Washington

Here’s what’s missing

June 17, 2010

How to lower the unemployment rate. How …  to … lower … the unemployement … rate. Lesse, I dunno …maybe growth the economy faster? Here is a bit from the UCLA Anderson Forecast:

Significant reductions in the unemployment rate require real gross domestic product (GDP) growth in the 5.0 percent to 6.0 percent range. Normal GDP growth is 3.0 percent, enough to sustain unemployment levels, but not strong enough to put Americans back to work. As a consequence, consumers concerned about their employment status are reluctant to spend, and businesses concerned about growth are reluctant to hire.

The forecast for GDP growth this year is 3.4 percent, followed by 2.4 percent in 2011 and 2.8 percent in 2012, well below the 5.0 percent growth of previous recoveries and even a bit below the 3.0 percent long-term normal growth. With this weak economic growth comes a weak labor market, and unemployment slowly declines to 8.6 percent by 2012.

Tepid growth leaves plenty of excess capacity, subdued pricing power and very little inflation. This will allow the Federal Reserve to postpone interest-rate increases that the Forecast expects to come late this year or early next, as the sustainability of a modest recovery becomes clear and as the need for preemptive action against future inflation begins to dominate monetary policy decisions.

Me:  I know it’s easier said than done. But everything government does from now on needs to be optimized for growth.

Comments

It’s apparent from the recent employment stats that companies are really cracking the whip on their current employees, rather than bringing on more help. Average workweek hours are up, overtime up, factory workweek up and so on. Companies aren’t hiring, I would guess, because of the endless uncertainty emanating from Washington. Obama and his minions keep threatening new regulations, new taxes, new this, new that without any regard for the legitimate concerns of business over how much all this will cost. More and more I believe industry wants to hire but will wait until the dust settles in Washington. That means November at the earliest before the employment stats start improving.

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