New unemployment claims rose sharply last preceding week, reversing the drop from the previous week and surprising economic experts.

For the week ending January 22, new jobless claims increased by 51,000 to 454,000 according to a report released by the Labor Department. The four-week moving average, which smooths out weekly volatility, increased by 15,750 to 428,750. The insured unemployment rate also crept up as a result - increasing to 3.2% from the previous week’s unrevised rate of 3.1%.

But these weekly fluctuations are likely to continue. The national unemployment rate was officially stated at 9.4% in December, only slightly lower than its peak of 10.1% in late 2009. Before the recession began, the annual average unemployment rate was 4.6% in 2007. The economy is simply not growing strongly enough to positively affect the jobless rate quickly.

The Congressional Budget Office reported last week that the unemployment rate is expected to remain elevated partially due to changes in the work environment such as a “mismatch between the requirements of available jobs and the skills of job seekers.”

The CBO expects that economic growth will remain moderate this year and next - real GDP is projected to increase by 3.1% this year and by 2.8% next year. The CBO estimates that for the next five years, the U.S. economy will add approximately 2.5 million jobs per year.

And though the recession technically ended in June 2009, the economy has netted a mere 70,000 jobs in the eighteen month period from the end of the recession to December 2010. This resulted in an employment gain of .06%. Comparing this to historical data - the first eighteen months of past recoveries resulted in an average employment gain of 4.4%.

Considering that the economy lost 7.3 million jobs during the recession, and 9 million workers who wanted full-time jobs accepted part-time positions in order to have a job, it’s easy to see that it’s going to be a slow process to see improvement in the job market.

The CBO estimates that the unemployment rate is likely to fall to 9.2% by the fourth quarter this year, to 8.2% in the fourth quarter of 2012, and 7.4% in the end of 2013. The unemployment rate isn’t expected to reach the natural unemployment rate of 5.3% until sometime in 2016.

The CBO also expects that inflation will remain very low in 2011 and 2012 and is not likely to be above 2% per year, due to the large amount of unused resources in the economy.


Source:
U.S. Department of Labor
Congressional Budget Office