SCENARIOS: How soon will U.S. jobs come back?

Mon Aug 3, 2009 1:22am EDT
 
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By Emily Kaiser

WASHINGTON (Reuters) - The pace of economic recovery holds the key to how quickly the U.S. unemployment rate recedes from its 26-year high of 9.5 percent.

A rule of thumb states that it takes economic growth of roughly 2.5 percent just to keep the jobless rate where it is.

The last recession, in 2001, was followed by a long period of unusually high joblessness. In 1983, by contrast, when the jobless rate reached 10.8 percent, it fell much more quickly, down to 8.3 percent one year after that recession ended.

Here are three scenarios for the path of unemployment:

THE MAINSTREAM VIEW

This is the view held by the U.S. Federal Reserve and many private economists: the recession ends this year, but the recovery is too tepid to make much of a dent in the jobless rate.

In that scenario, unemployment doesn't get much worse, but it takes a long time to get back to 4.9 percent, where it stood before the recession.

The Fed thinks unemployment will stay well above 9 percent through 2010, and it could take five or six years before economic growth and the labor market return to normal.   Continued...