Forecast Employment: January 2008

The official unemployment rate has lost much of its meaning since 2001 because of a mysterious decline in labor force participation which keeps the rate artificially low. We suspect that the actual rate, if calculated with pre-2001 methodology, would be a percentage point higher.

Nevertheless, we include it in our forecast at its official level along with employment growth. Both of these numbers are susceptible to Fed tightening in ways that cannot be anticipated. While lower interest rates may do little to stimulate the economy, higher rates can stall it within 12-18 months. This was the experience of the Greenspan rate hikes in the late 1990s and into 2000. It would be best if the Fed simply put down its gun and walked away before anybody got hurt.

Higher prices from the dollar's fall will negatively affect real compensation for workers. This slowing of demand will itself depress thing further. Fed action to increase the pressure could create a downward spiral.


The return of a Democratic president ought to return economic policy to a more pro-employment stance.