WASHINGTON (AP) — The economy’s 5.7 percent growth last quarter — the fastest pace since 2003 — was a step toward shrinking the nation’s 10 percent unemployment rate.
There’s just one problem: Growth would have to equal 5 percent for all of 2010 just to lower the average jobless rate for the year by 1 percentage point.
And economists don’t think that’s possible.
Most analysts say economic activity will slow to 2.5 percent or 3 percent growth for the current quarter as the benefits fade from government stimulus efforts and from companies drawing down less of their stockpiles.
That’s why the Federal Reserve and outside economists think it will take until around the middle of the decade to lower the double-digit jobless rate to a more normal 5 or 6 percent.
Another way of looking at it: A net total of about 3 million jobs would have to be created this year to lower the average unemployment rate by 1 percentage point for 2010, economists estimate. Yet even optimists think the creation of 1 million net jobs is probably out of reach this year.
High unemployment poses a risk to the unfolding recovery because it leads consumers to spend less, keeping economic growth weak. A sharp pullback in spending might even push the economy back into recession. Joblessness also represents a danger for President Barack Obama’s Democratic Party in this fall’s congressional elections.
The National Association for Business Economics and the International Monetary Fund think gross domestic product will rise just under 3 percent for all of this year. GDP, the best gauge of economic activity, measures the value of all goods and services produced in the United States.
To get a sense of just how deep a dent the worst recession since the 1930s has made in the economy, consider this: The economy shrank 2.4 percent for all of 2009 — the sharpest drop since 1946. It was also the first annual decline since 1991.
Mark Zandi, chief economist at Economy.com, and Bill Cheney, chief economist at John Hancock, agree that the economy would have to grow roughly 5 percent for all of 2010 just to ratchet down the average unemployment rate for the year by 1 percentage point — to a still-high 9 percent.
Their math is based on Okun’s law, named for economist Arthur Okun. In 1962, Okun produced a formula for the connection he saw between unemployment and economic activity.
Exactly how much GDP growth is needed to lower the unemployment rate for a given period varies. That’s because the formula involves several factors besides GDP growth. It also considers, for example, businesses’ productivity growth.
When the economy was recovering from the 2001 recession, it took two years to reduce the unemployment rate by nearly a full percentage point: It fell from 6 percent in 2003 to 5.1 percent in 2005. GDP growth averaged just over 3 percent.
Economists say the formula hasn’t always held up perfectly in recent decades. Rather, it’s relied upon as a rough rule of thumb for determining how much growth will be needed to lower unemployment.
But a near-textbook case occurred in 1976, when the economy expanded at a 5.4 percent pace. As Okun would have predicted, that growth drove down the unemployment rate by nearly a full percentage point: from 8.5 percent in 1975 to 7.7 percent.
Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
The need for clean energy and a transformation of our transportation infrastructure could not have come at a better time.
Making the transition to a low-carbon economy (and society) will drive the job creation needed to help pull us out of the current recession.
It will also firmly establish America as the global leader in clean energy and clean transportation technology and production – something this country desparately needs and a position we are in grave danger of giving up to either China or Europe.
Andy H
sayitgreen I’d like to see a real economic study regarding what you just claimed. A real stimulus would be to implement the fair tax. It would do much more to give us an edge against China and Europe. Read more about it on fairtax.org or just google it.
Andy, to your point: Innovative solar technology, developed by and licensed from Rice University in Houston, winds up being funded by China.
collegeuniversityrelatednews.blogspot.com/2010/02/prn-new-jersey-solar-pioneer-signs-deal.html
$3.0mm is a drop in the bucket. I wonder why our government didn’t fund this? Maybe because we have no strategic plan?
every 1 green job “created” costs 3 non-green jobs.
instead of lunacy, i propose we return to a new CCC modeled after FDR’s CCC. have the army corp of engineers train hundreds of thousands of under 30 youth unemployed to build national infrastructure. as the new CCC moves through communities building maglev rail, water systems, modern nuclear power systems, highway systems, etc., new startups and industries will sprout up to service activities in that area.
Are you serious or are you trying to be funny? FDR was the biggest falure in the history of our country. His and his kind and their policies are a huge part of what have caused the problems with our federal deficits and the intitelment mentality that has weakend this country. Why turn the USA into the USSR? That worked so good, eh?
I agree, the army corp of engineers is not the best organization for effeciency. The ‘army’ in general is not the best source to find new economic growth. Being in the Army, I see first hand how un-effecient and wastefull the Army can be. It is not meant for these kind of progams. I suggest private contracts instead of government agencies. Just a thought
You green people are in la-la land. There is no possible way that “green energy” can be developed with the speed, volume and ferocity needed to even scratch the surface of the world’s need for energy. Did you not just read the above article to see how many millions of jobs it will take to lower the unemployment rate just 1%? What is needed are tax breaks for business being taxed to death, and other REAL stimulus to get the economy growing in the REAL world.
Re: the grean jobs comment
The only problem with “clean” energy and transportation is that it doesn’t make sense economically. Wind energy is old technology and has just recently become profitable with out tax encentives. The only way large scale clean energy would make sense economically with out government intervention would be for oil prices to get stuck above $150 per barrel for an extended period. The only problem is that oil that high would destroy the economy in the short term. It’s a catch 22 until the clean energy technology advances, which means a lot up front R&D which only can come from profits.
Your phrase, “…as the benefits fade from government stimulus efforts…,” is fundamentally flawed. Since when are there any true benefits from Socialist, Keynesian meddling in the economy? Come on, you should know better than that.
THOMAS
Any consumer knows that if you improve your standard of living today with debt, you must sacrifice your standard of living tomorrow. Stimulus funds were spent reckless and inefficient to achieve social objectives and reward political allies, not to boost employment. So, we see little benefit and will have to pay the price for a long time. Now we must pay… The “Bush tax cuts” are ending. Inflation will erode our dollar. Growth will be undermined by Interest rate increases required to prevent runaway inflation. How quickly we forget. In just a couple years we have undone 20 years of gains, and we have a generation of voters that don’t remember or even care about what Reagan did to get out of this kind of mess a few short years ago. Government is not the solution to the problem, government is the problem.
Instead of coming up with formulas to make excuses how about we do what John F. Kennedy suggested and reduce regulation and taxes and cut spending instead of throwing trillions of money at an already bankrupt economy and expecting it to turn around. If government “stimulus” and massive social programs were the answer the Soviet Union would still be around and would be an economic powerhouse. We’d be looking at Cuba and North Korea as economic role models, you get the picture well maybe not.. most people can’t remember what happened yesterday much less 20+ years ago.