The Fed's Deep Pessimism About Some Jobs

Douglas A. McIntyre

At the core of the Federal Reserve evaluation of the economy as it embarks on QE3 sits its forecast for job creation. The “central tendency” figures in the forecast from the Federal Open Market Committee throw out the three highest and three lowest predictions from the “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents.” This makes that portion of the report misleading. The range of projections from all of these sources shows how extremely pessimistic some Fed member forecasts are.

On the downside of the predictions, unemployment will be as high as 8% next year and 7.5% in 2014. Those numbers are naturally linked to gross domestic product, where the low-end forecast for next year is 2.3% and 2.7% in 2014. Should those forecasts come true, many portions of the U.S. economy will remain in a recessionlike condition for at least another two years, after four years of terrible weakness that began in 2008.

The worst effects of an ongoing troubled economy will continue to weigh on minorities, the poorly educated and the young. The concept of a “lost generation” of adults, who now are between ages 16 and 19, will become reality. Even adults who are slightly older fall into a category in which current unemployment is about 10%. The unemployment rate among blacks was 16.7% last month. Among the people with less than a high school diploma, the number was 14.1%. On a geographic basis, the figures for the most badly damaged states and cities are no better. And these numbers do not include the “marginally attached” and part-time workers who continue to seek full-time jobs.

There are no meaningful efforts to drive up employment among these most damaged groups, where real jobless figures are above 20%. Based on some Fed forecasts, the devastation of these people will remain, perhaps well into this decade.

The jobs situation is similar to the housing one. In some pockets of the United States, foreclosure rates are close to their highest levels in recent memory. Housing numbers cannot fully recover as long as that is true. And employment numbers can only make limited progress until the groups that have the highest levels of joblessness have some means to better their situations.

As is often the case, the people at the margins, which in the U.S. number in the millions, will continue to be in trouble and will drag on the national economy for years.

Douglas A. McIntyre