Last week’s news of a drop in the unemployment rate to ten percent is a welcome development. It was presaged by earlier strength in reliable leading employment indicators, which suggest that this improving pattern will persist next year.
...looking ahead to the later phase of the expansion, the post-World War II period shows disturbing cyclical patterns.
The jobless rate usually sees a sizeable drop during the economic recovery – and bigger recessionary spikes in unemployment are typically followed by larger declines during the first year of improving unemployment. So it would be no surprise if, a year after the unemployment rate begins to drop, it falls to the nine percent range.
The real problem is that the rate of decline in joblessness slows during the rest of the economic expansion. The annual postwar pace of decline in unemployment during these periods has been reasonably uniform, the median being 0.5% a year.If that pattern persists, the U.S. economy needs to keep expanding without interruption until 2020 for unemployment to fall to its pre-recession low. Even to get back to 5%, often considered to be “full employment,” it would take a business cycle upswing lasting about as long as the record-setting 1991-2001 expansion.