If the economy improves in 2011, the surest sign of this might be an increase in the unemployment rate. That is not a typo. An increase in the unemployment rate could be an indicator that the economy is improving and that a recovery is taking place. This will be one of several indicators to keep in mind as 2011 unfolds and Americans (and pollsters for both parties) wonder whether or not this is the year that the economy shows signs of recovery.
A higher unemployment rate could mean that the workforce participation rate has increased. The unemployment rate measures how many people who consider themselves in the workforce are actively looking for jobs. However, if someone decides not to even look, they don’t count. This is why a student who decides to go to graduate school, or a parent staying at home with children, is not “unemployed.”
As Eli Lehrer of the Heartland Institute pointed out, “One enormous strength of the US economy is that our workforce participation rate is higher than that of other OECD countries.” However, it is currently lower than its usual highs. If more people think they have a chance to work, then they may reenter the job hunt, and workforce participation could increase. A higher unemployment rate, possibly 10%, would reflect the larger size of the pool of workers who think they could get jobs.
Of course, more interest in work doesn’t mean that the fundamentals of the economy are strong and that the nation is in a durable recovery. Economist Douglas Holtz-Eakin noted two key sectors that he will be paying attention to. First, the business community. Here, his focus will be on “investment, production of durable equipment, construction, and capital goods orders.” The other main area of attention will be exports, and the trade accounts.
His own personal expectation is that the recovery will be a slow and long one, with GDP growth in 2011 hitting close to 2% or 2.5%.
Inflation has also been a topic that FrumForum has been highlighting as a way to judge the progress of the Fed’s monetary stimulus.
Even if a recovery does take place, there will still be questions about whether it is masking deeper structural issues. So far, there are not many voices talking about a quick and easy turn around.
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