In a research report from the Federal Reserve Bank of New York, economist Aysegul Sahin and research associate Christina Patterson project that U.S. unemployment could drop to 6% by mid-2013 and just above 5% by late 2014.Using historical rates of inflow and outflow dating back to the 1940’s and comparing past recoveries, the potential for a 6% unemployment rate by next summer is possible.
“During economic recoveries, the flows into unemployment start to slow, and the outflow rate from unemployment (the drain) begins to dominate unemployment dynamics. We find that these increases in outflows explain the recent decrease in the unemployment rate and that this dominance of the outflow rate is likely to continue unless the economy experiences another recession. Furthermore, simulations based on historical patterns suggest that the fall in the unemployment rate could be quicker than many forecasters predict.”
Citing the three different scenarios, all of which project the unemployment rate to sink to 6% by year end 2014, the two conclude that inflow and outflow rate jointly determine the unemployment rate and “changes in the outflow rate will be the most important determinant of the path of the unemployment rate int he future.”
The March 2012 Blue Chip consensus, which they cite in their blog post, forecasts unemployment remaining above 7.5% all the way through 2013.
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