CHART OF THE DAY: The CBO's Laughably Optimistic Unemployment Projections

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Yesterday’s report from the Congressional Budget Office was widely derided for “dated optimism.” Reuters columnist James Pethokoukis wrote: “The rosy economic forecast is one reason I place little confidence in the CBO’s budget projections.”

Let’s go over the unemployment projections.

The CBO sees the rate dropping to 8.5% in 2012. Although more pessimistic than past estimates, this figure is optimistic compared to Wall Street estimates of 9.25% from Goldman and 9.5% from JP Morgan.

But what’s really controversial is the claim that unemployment will return to a steady 5%. This assumes that unemployment is entirely cyclical and disregards well-known structural factors such as changes in technology, skill mismatches and global trade shifts.

chart of the day, cbo unempolyment projections, aug 2011

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