As noted previously, unemployment tends to lag GDP and other economic indicators as an economy recovers. Employers are cautious about ramping up employment, particularly in back office and administrative areas or in opening second and third shifts when demand first returns. As a result, we do not expect employment to recover as quickly after the pandemic. Indeed, we do not expect the unemployment rate to return to 2019 levels until well after 2022, if at all. We have already noted that the unemployment rate had fallen continuously for the past decade even though GDP growth was below three percent. We expect a return to more traditional patterns in the aftermath of the current crisis and the distinct possibility that unemployment rates below four percent will not be seen again for several years. Like GDP, the closures and other reductions during the current acute phase of the crisis will yield an annual average unemployment rate dramatically higher than in 2019 even if/as recovery begins. Unlike GDP, however, the unemployment rate is not a comparison to prior year activity but to current labor force and employment numbers. Nevertheless, the growth in the next two years as economic output returns to pre- pandemic levels will reduce the unemployment rate from this year’s crisis high. At the same time, we anticipate that there will be a modest but measurable reduction in the labor force as some nearing retirement and some formerly two-income families choose to remain out of the workforce permanently rather than reengaging. Based upon these considerations and the assumptions and analyses described, we forecast an annual average unemployment rate for the U.S. as a whole of 10.2 percent for 2020, declining to 8.2 percent for 2021 and 6.7 percent for 2022. In a sharp downturn such as the current crisis, actual deflation is a possibility. However, the intervention of the Federal Reserve and federal and state governments is expected to prevent deflation from occurring this year. As recovery begins next year and extends through 2022, we expect the inflation rate to move from negative pricing pressure due to the drop in demand to positive pressure due to the massive level of debt driven government intervention and the realities of sustaining profit margins in a less productive more expensive cost environment. In particular, we expect that current “hazard pay” increases in some industries will be more difficult to eliminate than they were to extend in the first place. This will also put pressure on operating costs and on pricing. Based upon our assumptions regarding the pandemic and the considerations described we forecast an annual inflation rate for the U.S. economy of 0.5 percent for 2020, followed by inflation rates of 2.5 percent and 3.1 percent in 2021 and 2020 respectively. The forecasted unemployment and inflation rates described are shown in the graph on the following page.
∴ PROGNOSIS
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