So where does unemployment go this year?
Lower, but not a lot lower. The labor market isn't clearing as quickly as you might expect it to. I think that there are some fairly important structural changes that have gone on in the economy that we have not fully adjusted to yet.
What are they?
Let's take construction. We've lost a couple of million jobs there. You would think that with these declines that there would be more construction workers leaving the market for other endeavors. So far that has been relatively muted. I think as the outlook for housing remains on the soft side, eventually more of those workers will decide it is time to change careers.
How do we clear the housing market, David?
It's going to be difficult with this backlog of foreclosures. I think what the foreclosure mess means is that it keeps valued assets in weak hands longer. What you need to fix a recession is to get assets in stronger hands. Normally that would occur through declines in prices, but the foreclosure process in real estate makes it a much more tedious correction.
Do we have stagnant incomes the next couple of years?
I think it is going to be a slow grind upward. We'll have nominal growth in the three-to-four percent range. That will keep the economy moving but not as rapidly as it might if we were in a more vigorous recovery.