US Unemployment 2012 and Beyond

Today the US Labor department released the October unemployment rate and it fell from 9.1 to 9 percent (here). President Barack Obama said the improvement was "positive" but that the economy is still growing way too slowly. His hope, of course, is that the unemployment rate will continue dropping right up to the 2012 election.

If President Obama is looking at some readily available forecasts, however, he must be anxious. The Financial Forecast Center (FFC) is forecasting (here) a huge increase in US unemployment for next year (graphic above).

My own forecast (above) shows unemployment stabilizing around 9% for the rest of 2011. Also of interest is that my forecasting model shows that US unemployment is primarily being driven by the world economy and world commodity markets (particularly the price of oil). The FFC forecasts are based on artificial intelligence techniques (here) which do not have an underlying causal model, so it's not entirely clear why they are forecasting such a large increase in unemployment next year. It will be interesting to revisit these forecasts before the 2012 election.

The FFC long-range forecasts (available by subscription) are only made out to 36 months. Commentators are concerned that the US is in for a "New Jobless Era". Jobs have been permanently lost to technology and globalization. The 2000 Financial Crisis swept away all the jobs created by the housing bubble. The jobs created by the bubble may simply never return.

To look at the real long-range, out to 2050, my model predicts an increase in US unemployment that is in line with the FFC forecast, anything from just over 9% to well above 11%. My guess is that the FFC artificial intelligence model is "seeing" the trend happen a little too quickly give the severity of the financial collapse.

We should also keep in mind that the BLS unemployment data is thought to be biased downward (here). Actual unemployment may be above 18% when considering underemployment and discouraged job seekers.