While uncertainty abounds in economic forecasting, U.S. unemployment will likely stay “severely” elevated well into next year, according to a report by two economists at the Federal Reserve Bank of San Francisco.
The jobless rate has already climbed to historic levels in just two months following the onset of the coronavirus-induced economic lockdown. A return to low unemployment will depend on how quickly and successfully the virus is contained, Nicolas Petrosky-Nadeau and Robert Valletta wrote in a letter posted Monday on the bank’s website.
“Our analysis suggests that returning to pre-outbreak unemployment levels by sometime in 2021 would require a significantly more rapid pace of hiring than during any past economic recovery,” they wrote.
The economists created three possible unemployment rate scenarios. One assumes a hiring pace similar to that in other recoveries and shows a slow return to pre-pandemic job levels, with the unemployment rate staying above 10% at the beginning of next year. Another shows growth bouncing back in the second half of this year and staying strong in 2021, resulting in a much quicker drop in the jobless rate.
The most optimistic case assumes strong hiring following an end to coronavirus restrictions in July, with hiring rates returning to pre-outbreak levels by the end of the third quarter. It would require 9 million hires per month in July, August and September, a rate nearly four times that of the most robust period following the 2008 financial crisis.
The Fed declined to publish its quarterly Summary of Economic Projections report in March, at the onset of the pandemic, citing too much uncertainty. St. Louis Fed President James Bullard said last week the central bank may forgo publishing the report again in June.