CBO: Unemployment Will Stay Above 8 Percent Until 2012

By Matt Cover | September 20, 2010 | 7:13 PM EDT

President Barack Obama answers questions during a news conference in the East Room of the White House in Washington, Friday, Sept. 10, 2010. (AP Photo/Pablo Martinez Monsivais)

(CNSNews.com) - The Congressional Budget Office is predicting that the national unemployment rate will remain above 8 percent until 2012, the year of the next presidential election.

The unemployment rate was at 7.7 percent in January 2009, when President Barack Obama’s top economic advisers said the economic stimulus package Obama was then proposing would prevent unemployment from rising above 8 percent. Currently, the national unemployment rate is at 9.6 percent. Four years ago, in September 2006, it was at 4.5 percent.

“CBO expects that the economic recovery will proceed at a modest pace, leaving the unemployment rate above 8 percent until 2012,” said CBO Director Douglas Elmendorf at a Sept. 16 policy seminar.

Elmendorf said that long-term unemployment was the highest it had been in six decades.

“Weak economic growth has serious social consequences. About 9½ percent of the labor force is officially unemployed, but many other people are underemployed or have left the labor force,” he said. “The incidence of unemployment lasting longer than 26 weeks has been the highest by far in the past 60 years.”

Elmendorf directly addressed the contention that the federal government is out of policy options for dealing with this problem, given the failure of the Recovery Act to hold down unemployment.

Congress’ chief accountant said that both fiscal and monetary options for attempting to spur the economy carried risks that policy makers must take into account.

“Although there are no magic cures, we do think there are both monetary and fiscal policy options that, if applied at a sufficient scale, would increase output and employment during the next few years (but not overnight),” Elmendorf said.

“Such options would have costs though—in particular, expansionary fiscal policy would increase federal budget deficits and debt relative to current baseline projections, which are already quite worrisome.”

Elmendorf said that policymakers thinking about additional stimulus needed to pair those policies with specific efforts to reduce the medium-term and long-term debt.

“If policymakers wanted to avoid worsening the large medium-term and long-term imbalance between federal spending and revenue, any policies that widened budget deficits in the near-term would need to be accompanied by specific policies to reduce spending or increase revenue over time,” he said.