US Unemployment Forecasts

Source: Federal Reserve of Governors

Unemployment forecasts by Federal Reserve for 2010, 2011 and 2012.

The main problem the US has is the large amount of spare capacity in the economy. Output has fallen 6%, whilst potential real output has continued to grow. This means the US is facing alot of spare capacity and unemployment.

In the US, flexible labour markets mean that it is easier for firms to fire workers. This could mean unemployment could fall faster than in Europe (where unemployment rose slower). But, at the same time, there are still those who fear that the official unemployment rate underestimates the true rate of unemployment because it ignores the fall in hours worked.

To a large extent, the fortunes of unemployment depend on the strength and resilience of the economic recovery. If growth picks up and increases by 4% a year, then there is potential for unemployment to fall quickly.

However if the growth rate is sluggish or even if we face a double dip recession, unemployment could rise further than these forecasts