Employment

What Will the Jobless Rate Be on Election Day?


The 2012 New Hampshire primary is less than a year away. What may ultimately decide the election is the jobless rate when voters head for the polls that first Tuesday in November 2012. Though recent job numbers are encouraging for the Democrats, economists still disagree sharply on what employment will look like come Election Day. Here are forecasts of the jobless rate in the last quarter of 2012 from three prominent economists.

NEAL SOSS, CREDIT SUISSE

CHIEF ECONOMIST

Late 2012 jobless rate prediction: 7.3%. Soss foresees a rapid fall in the unemployment rate over the next two years. He says the economy will pick up steam, growing by 3.3 percent this year and 4 percent next year. Consumers are already starting to shop again after curbing credit-financed purchases during the Great Recession. And thanks to the $112 billion cut in payroll taxes this year, they should have the wherewithal to weather a rise in food and gasoline prices, according to Soss. Companies, meanwhile, are finally putting some of their hefty profits to work by expanding capital investment. "The labor market seems to be turning," he says. "Job growth should pick up to about 200,000 a month from the 135,000 we've been getting."

Yet Soss says the faster growth won't entice that many Americans back into the labor force, robbing the economy of potentially productive workers. He sees the labor force participation rate—the proportion of Americans aged 16 and older who are working or seeking work—staying depressed, as younger Americans remain discouraged about their prospects while older workers retire. That will allow the unemployment rate to fall further, Soss says.

EDWARD LEAMER, UCLA

PROFESSOR OF ECONOMICS

Late 2012 jobless rate prediction: 8.6%. Leamer, who also directs the economic forecasts at University of California, Los Angeles, says the economy should grow at slightly above a 3 percent annual rate over the next two years. That, he says, is faster than the slow-growth model embraced by some investors, yet not rapid enough to make much of a dent in unemployment. Leamer argues that much of the recent decline in the jobless rate—it fell to 8.9 percent in February, from 9.8 percent in November—comes from discouraged workers dropping out of the labor force. The employment-to-population ratio, which Leamer maintains is a better measure of the labor market, has risen only slightly over the same period, to 58.4 percent from 58.2 percent. As the recovery prompts disheartened workers to seek jobs again, unemployment will rise back up to 9.4 percent in the second quarter, he says. The problem is that many of the job losses in this past recession were permanent: about 2.5 million in manufacturing, 2 million in construction, and 1 million in retail, by Leamer's reckoning. It will take time for people who lost those jobs to learn new skills. "The unemployment rate is going to be very persistent," Leamer says. "We had a record number of permanent displacements in the recession."

DAVID ROSENBERG, GLUSKIN SHEFF

CHIEF ECONOMIST AND STRATEGIST

Late 2012 jobless rate prediction: 10%. Rosenberg is the trio's biggest bear. The chief economist of an independent investment firm argues that the economy has barely been kept afloat by a massive amount of fiscal and monetary stimulus. As that's withdrawn, the expansion will falter. Even with "all the fiscal and monetary steroids" that have been administered, the economy looks set to grow below 3 percent again this quarter, Rosenberg says. Lackluster job creation shows no sign of accelerating. An "epic" 700,000 Americans have dropped out of the labor force over the past five months. If you adjust for that, unemployment would be at 12 percent, by Rosenberg's calculation. As a result, wages are stagnating. Consumers, who remain credit-constrained, face an extra headwind from rising food and energy prices. That's a "glaring yellow light" as far as consumer spending is concerned, says Rosenberg. Finally, fiscal policy will soon turn toward austerity as lawmakers push for spending cuts. "The problem with all this stimulus," Rosenberg says, "is that once even a small part of it is removed it will feel like a massive tightening."

The bottom line: The jobless rate may decide the next President. Projections by three noted economists for November 2012 range from 7.3 percent to 10 percent.

Miller is a reporter for Bloomberg News in Washington.

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