Economists do poor job of job forecasting

An unemployment rate in the double digits isn't surprising, but it arrived earlier than most economists were expecting.

I know this because I put the finishing touches on Money’s outlook for the 2010 job market less than a week before last Friday's unemployment report came out -- the report announcing that the jobless rate had surged from 9.8% to 10.2% in October. Economists I had been talking to only days earlier hadn't forecast a rate that high. And it wasn't just the people I spoke to who had low-balled the number: In mid-October, the Blue Chip Economic Indicators newsletter, which captures the consensus forecast of more than 48 economists, reported that the jobless rate was expected to peak at 10.1% in the first quarter of 2010. And the National Association for Business Economists, which presents 44 economic forecasts, projected in October that unemployment would rise to 10% in the first quarter of next year and edge down to 9.5% by the end of 2010.

So, does reaching the grim double-digit unemployment milestone sooner mean that unemployment is going to go significantly higher than anticipated next year? Or could it mean that the worst is over and the job market is recovering more quickly than expected?

My predictive powers are no stronger than an economist's. But there were some signals of improvement in the October job news that give me hope that unemployment won’t significantly worsen next year.

Those signs include a slowdown in the rate of job losses. According to the Bureau of Labor Statistics, between November 2008 and April 2009 the economy shed an average of 645,000 jobs a month. Between May and July, the pace dropped to an average monthly loss of 357,000 jobs. Over the last three reports, average monthly job losses have slipped to 188,000. Meanwhile, the number of temporary workers being hired rose 44,000 in October, the third month in a row that the temp sector posted gains. Adding temporary workers is one of the first signs that companies have stopped cutting their workforces and need to bring in new workers to get the work done. The number of weekly hours worked even ticked up to an average 33.1 hours in October from 32.9 in September.

Of course, no one is expecting a swift drop in the unemployment rate. It’s likely to remain at these elevated levels for most of 2010. But the job market does seem to be slowly getting better, not deteriorating. Let's hope that prediction is correct.

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