We are not suggesting the unemployed are on the doll or gaming the system. Most are simply a victim of a weak economy. However, “at the margin,” it is reasonable to assume the unemployment rate is probably elevated somewhat (e.g., by one-half or one percent?) by the massive extension in unemployment benefits.
This could be important in 2012 since increasing numbers of those who have been receiving extended unemployment insurance may reach the 99 week limit. As benefits expire, many may simply leave the labor force and no longer be reported as unemployed. As a result, the “reported” unemployment rate could fall faster than predicted by better economic growth alone adding to a sense of economic betterment. Could an unintended outcome of extending unemployment benefits in recent years be a force which augments the 2012 “Gear Year”?
Exhibit 8
Economic Character of the 2012 Gear Year?
Similar to the last two recoveries, we think 2012 may represent the “Gear Year” for the current recovery. While the change in attitudes associated with a Gear Year should help augment growth next year, the economic outlook will also be impacted by other considerations.
First, the U.S. economic recovery faces significant challenges from the global economy. The euro zone seems headed for recession next year and the emerging world economic recovery is likely to slow further during the first half of 2012. While we do expect these events to retard overall U.S. growth we do not believe their combined impact will prove significant enough to keep U.S. real GDP growth from accelerating to about 3 percent in the coming year. Most non-euro zone economies seem poised for another year of positive growth in 2012, and the largest and most important euro zone economy, Germany, appears likely to skirt recession. Moreover, Japan, Canada, and Australia will all likely be contributors to world growth next year. Finally, while we worry about its potential, we believe the likelihood of an outright recession among emerging world economies remains remote. Although the emerging world economic recovery may slow further in the first half, the recent easing moves by policy officials throughout these economies should produce faster growth by the second half of the year.
