NEW YORK (MainStreet) — If you’re hoping the unemployment rate will improve significantly this year and get more Americans working, the Congressional Budget Office has a message for you: Don’t hold your breath.
The non-partisan Congressional agency predicts that the unemployment rate will not drop below 8.9% this year, and will only reach as far as 8.5% next year, an improvement of just 0.6 percentage points from the current rate and still well above what was once considered the worst-case scenario at the beginning of the recession.
The group chalks up the slow improvement in unemployment to the limited growth of the economy overall. As the CBO puts it, “the lingering effects of overbuilding, the financial crisis, and the recession” combined with the spike in oil prices earlier in the year have hampered the economy’s progress. For these reasons, the CBO predicts that the U.S. gross domestic product will increase by just 2.3% this year and 2.7% next year.
“Although economic output began to expand again two years ago, the pace of the recovery has been slow, and the economy remains in a severe slump,” the agency wrote in its report. “Recent turmoil in financial markets in the United States and overseas threatens to prolong the slump.”
Indeed, the CBO doesn’t expect the labor market – or the economy as a whole – to pick up steam until at least 2013. Between 2013 and 2016, the CBO estimates that the GDP will expand by an average of 3.6% each year and with it, the unemployment rate will drop to an average of 5.3% in that period where, it will level off, finally approaching the level it was before the recession.
Of course, these estimates are based on the assumption that no changes are made to existing legislation and that no unforeseen events derail the economy’s current trajectory. As MainStreet previously reported though, if a fiscal crisis at home or abroad were to plunge the U.S. economy into another recession this year or next, the unemployment rate could shoot up to as much as 10% or 11%, likely delaying the time it would take to return to the lower rates predicted in the report.
One part of the economy that will improve markedly in the near future is the nation’s deficit, which the CBO predicts will now total $3.5 trillion between 2012 and 2021, compared to an earlier estimate that cumulative deficits in those years would total $6.7 trillion. Most of that difference, the agency notes, is due to the Budget Control Act that was implemented earlier this year as part of a deal to raise the debt ceiling. And the deficit may drop further still as a Congressional committee is set to debate more debt-reduction measures later this year.
So while we may be on the verge of solving one fiscal crisis plaguing the country, unfortunately for many it’s not the unemployment crisis.
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