Here comes 10 percent unemployment, according to chief Moody's economist Mark Zandi. The analyst the White House likes to quote told a group of reporters today that the economy is recovering very slowly and that jobs will continue to be lost for months, leading to an unemployment rate of 10 percent as early as Election Day and no later than the end of the year.
In a wide-ranging discussion of the economy with reporters, Zandi focused on the recovery and jobs outlook. In the short term, he said, job losses will continue at about 50,000 a month, leading to a 10 percent unemployment rate. Getting the rate back to below 8 percent or better, he said, "will take five years." He predicted that the new jobs will come from manufacturing and service industry exports.
But long-term unemployment will help to stall a rapid recovery and probably continue to be a drag on home sales and mortgages. He's predicting a surge in bad mortgages, due to expected drops in home value.
But he said that consumer "demographics" predict spending to begin by 2012, something that could give President Obama a political boost before his reelection campaign. "I am much more optimistic about the economy after we get through the next six to 12 months," Zandi said. One example he cited was car sales. He said that auto makers are selling 11 million units a year now but by 2012 that will increase to 15.5 million due to "pent up demand" and consumer needs.
In the interview, he joined a chorus of Democrats in refuting House Minority Leader John Boehner's claim yesterday that the stimulus did not create jobs, though the economist said that the package should have been bigger. Without the stimulus, Zandi said that there would be 2.5 to 3 million fewer jobs and the nation would be suffering from 11.5 percent unemployment. "We'd be in measurably a worse place," he told reporters.
But Zandi said that stimulus wasn't the job saver that the Obama administration predicted. "It certainly hasn't helped as much as people would have liked," he said. "I would have made it larger," Zandi added. He also said that he would have included "temporary tax cuts" such as a payroll tax holiday.
As for a future stimulus, Zandi said that there is little that the administration can do to immediately turn the economy around. Over the next six months to a year, he said, "it's going to be very difficult." Among his suggestions are continuing the Bush tax cuts, with the eventual phasing out of the upper-income cuts as the economy comes back; legislative help for small businesses to get credit; and a new mortgage refinancing rule changes to speed up the process.