Since the U.S. economic recovery began to slow in June, economists have been readjusting their forecasts for the next few years. The Federal Reserve added a few tenths of a percentage points onto its view of how high unemployment might be for 2011 and 2012. Other economists revised their predictions in a similar manner. But a September economic report from Bank of America/Merrill Lynch suggests an especially grim possibility: we will enter 2012 with unemployment in double digits.
But before we get to BOA's new estimate, what do some other economists think? The Fed is usually a good baseline. Here's its revision from the end of June:
Focus on the unemployment rate. You can see that they worsened their outlook from April to June. Their revision implies that unemployment could be as high as 7.9% as 2012 begins. Compare these predictions with those from a recent report (.pdf) from BOA. Here's what it forecasts:
As you can see, its new estimates are pretty gloomy. They easily exceed their old estimates and what the consensus believes. They're also much worse than the Fed's estimates. It sees unemployment between 7.6% and 8.9% in 2011. BOA sees the jobless rate in double-digits throughout the year.
Bank of America isn't predicting a double-dip, however. It just foresees a very weak recovery. Its economists say it will be so weak that job growth will occur, but at too slow a pace to even keep the unemployment rate constant. Its report says the "break even" to keep unemployment steady would be 150,000 new jobs per month. You would need more than that in order to start to push down the unemployment rate. Neither of these big banks see that as plausible in the near-term.
Calculated Risk pointed out BOA's forecast and also noted the similarly negative view of job growth from Goldman Sachs economist Ed McKelvey:
"[W]e expect payroll gains to slow to 25,000 per month (ex Census workers) and the jobless rate to drift up to 10% over the next half year."
Don't confuse unemployment rising with a double-dip recession. These economists are predicting the former, but not the latter. They forecast a very weak recovery. BOA sees 2011 growth at 1.8% -- much worse than the 2.9% to 4.5% the Fed predicts. So you don't need a worst-case double-dip to see unemployment rise again -- a very slow recovery could provide that result as well.
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