A leading economist Monday said that unemployment is much more than a lagging indicator of where the economy has been, it also signals what the future holds. Mohamed El-Erian, Chief Executive Officer of Pacific Investment Management Company said that 9.8 percent national unemployment rate is an omen of things to come. Some 15 million people are jobless in the U.S. and their prospects are limited. This will hurt the housing market, put pressure on the wages of those still employed and undercut the economic recovery.
The job market tends to trail the economy in a recovery because companies hesitate to take on more workers until they are convinced the expansion will last. What’s different this time is the “large and protracted” rise in joblessness and the likelihood that it will stay high for years, according to El- Erian. That means unemployment will affect the economy going forward, not merely reflect where it has been.
El-Erian sees the U.S. entering what he calls a “new normal” — a sustained period of annual growth of about 2 percent — as Americans adjust to a world where credit and jobs are less plentiful. In the five years before the recession began at the end of 2007, gross domestic product expanded at an average annual rate of 2.8 percent.
Unemployment Becoming Leading Indicator for Pimco’s New Normal
