FED: Jobs Outlook Overly Rosy Well this does not bode well. Folks counting on a recovery may be in for a disappointment. Politicians looking to spend money may not have the money to spend if workers are not employed. The continuation of a jobless recovery seems too likely.
Jobs outlook may be too optimistic: SF Fed study
http://news.yahoo.com/s/nm/20100308/...d_unemployment
By Ann Saphir – 1 hr 4 mins ago
CHICAGO (Reuters) – The widely held outlook that U.S. unemployment will ease this year may be overly rosy if companies continue to boost productivity at faster-than-usual levels, economists from the San Francisco Federal Reserve Bank said in a study released on Monday. Economists Mary Daly and Bart Hobijn trace last year's surge in joblessness to unusually strong productivity growth at U.S. businesses.
Companies' ability to keep output steady, even as they slashed jobs, meant the unemployment rate rose twice as fast as predicted by the historical relationship between gross domestic product and unemployment, known as Okun's law, the economists found. U.S. joblessness touched a high of 10.1 percent last year.
"Most forecasters assume that the economy will return to its historical path this year, following Okun's two-to-one ratio of changes in GDP and changes in unemployment," Daly and Hobijn wrote in the San Francisco Fed's latest Economic Letter. "Under this scenario, unemployment would begin to edge down this year as the economy recovers and gains momentum."
The jobless rate unexpectedly fell to 9.7 percent in January and was unchanged in February, despite expectations that it would tick up. But the breakdown in Okun's law could signal a fundamental shift as businesses emphasize cost-containment and flexibility, the economists said. "If productivity keeps on growing at an above-average pace, then unemployment forecasts based on Okun's law could continue to be overly optimistic," they wrote.
The economic analysis is likely to feed into a growing debate among senior Fed officials over how long to retain the U.S. central bank's pledge to keep interest rates exceptionally low for an "extended period," language that the Fed has used since cutting its target benchmark to near zero in December 2008 to blunt the worst economic downturn since the 1930s.
The president of the Kansas City Fed, Thomas Hoenig, dissented on the language at the central bank's January meeting, and last week St. Louis Fed President James Bullard said he was losing patience with the pledge.
Janet Yellen, president of the San Francisco Fed, has weighed in at the opposite end of the spectrum, saying last month that the economy still needs ultra-low rates and suggesting that any rate change may be far in the future.
Yellen does not have a vote this year on the U.S. central bank's policy-setting Federal Open Markets Committee.
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Originally Posted by telkanuru 
