With all the hub-bub over the last couple of days about the future of unemployment, it seems worthwhile to take a look back at its past.
The unemployment debate was reignited yesterday, when the San Francisco Fed put out a paper that said that unemployment was far above levels that would be expected with the drop in GDP the US has experienced over the past year. Today, Charles Evans, president of the Chicago Fed said, taking into account the labour market’s historical response to a recession, joblessness is about where some models would predict it would be.
So did he (or anyone on the FOMC) predict this?
Not even close.
This is a chart of the FOMC’s predictions of average unemployment in the fourth quarter of 2009. Actual unemployment was 10.03 per cent (light blue line).
Even after Lehman collapsed, estimates of future unemployment (blue line) are scarcely above what unemployment was at the time (yellow line). The average estimate doesn’t reach the actual estimate until November, and even the least optimistic member of the FOMC (purple line) doesn’t predict unemployment will reach its year end level until June 2009.
So does this mean that unemployment is out of line with the fall in GDP? Not at all. The FOMC didn’t do a very good job predicting that either.
