OECD Sees Elevated Unemployment Levels Until 2013
While the National Bureau of Economic Research announced Monday the recession ended in June 2009, the Organization for Economic Cooperation and Development says unemployment in the U.S. may stay above the pre-crisis level until at least 2013, with long-term unemployment remaining a concern.
"Supported by substantial stimulus measures, the U.S. economy has started to grow again after one of the most severe economic crises it has faced since the Great Depression," the OECD said in its latest U.S. Economic Survey -- a 142-page report full of assessments and recommendations. But the OECD projects a slower pace of growth than past expansions as the economy remains constrained by the "significant tightening of credit and the loss of one-quarter of household net worth between the middle of 2007 and early 2009." The OECD projects economic growth of 2.6% in 2010 and 2011.
"We don't see a risk of a double-dip recession," said OECD Secretary-General Angel Gurría. "That said, we don't see either a recovery that is strong enough to put a significant dent in unemployment."
The survey explains that as unemployment rose for two and a half years before peaking in the fourth quarter of 2009, "it could be early 2013, at best, before the rate returns to its pre-recession level," because of sluggish demand while Americans put their finances in order. The jobless rate will average 9.7% this year and 9.0% in 2011, according to OECD.
The OECD welcomed near-term support for the labor market, such as the extension of unemployment benefits, but to combat long-term unemployment, such measures should slowly return to pre-crisis level. The survey also recommends prolonging training and education programs for the unemployed.
Similarly, other stimulative and supportive moves are warranted in the short term. However, "the groundwork for withdrawing the very accommodative stance of monetary policy has begun and should be continued," the report added. Gurría welcomed the administration's plan to reduce the deficit to 3% of GDP by 2015.
Not surprising, OECD expects the housing market to face "a long process of returning to normal," especially with the 11.2 million (and growing) homeowners (24% of mortgaged homeowners) with negative equity in their homes.
Finally, the survey supports the recent health-care reform as it includes measures to reduce the growth in health-care spending. But OECD also says the U.S. needs to do much more to reduce greenhouse gas emissions to reduce the risk of serious damage from climate change.
Federal Reserve policymakers who are meeting today will no doubt wrestle with some of the same issues and discuss whether additional -- and bolder -- steps should be taken to strengthen the economy and drive down unemployment.