Plosser sees 7% unemployment by 2012, no rebound in housing
Charles Plosser, president of the Federal Reserve Bank of Philadelphia, believes the nation's unemployment rate will fall to 7% or 7.5% by 2012. Unemployment has hovered around 9% this year, after climbing to 9.8% in November. At the same time, Plosser's vision for America's anemic housing market remains bleak despite his above-trend estimate of GDP growth in the range of 3% to 3.5% for the second half of this year. "Housing ... will likely remain a weak spot in the U.S. economy, with flat to slightly falling prices and little new construction," Plosser said told the Society of Business Economists in London Thursday. "This year's first-quarter GDP growth, at just below 2%, was somewhat disappointing," he said. "But I believe that this weakness will likely prove to be a temporary soft patch and that the underlying fundamentals remain in place for the economy to resume growing at a moderate pace in the second half of this year, and to strengthen a bit more next year." Plosser's forecast on jobs and unemployment — whether too optimistic or not — is what the recovery needs to pick up speed based on other economic reports as well, including one from the Mortgage Bankers Association that highlighted jobs as the missing ingredient to a full recovery. "The U.S. economy has added over 780,000 jobs since the first of the year," Plosser said. "The private sector has managed to increase payrolls by more than 900,000, but government employment has been shrinking, thus dragging net hiring down below 800,000. May's uptick in the unemployment rate to 9.1% was a bit disappointing, but even with that, the unemployment rate has fallen by 0.7% since last November." Federal Reserve Chairman Ben Bernanke said earlier this week a bleak jobs market is a drag on the economy and housing sector. "The housing sector typically plays an important role in economic recoveries; the depressed state of housing in the United States is a big reason that the current recovery is less vigorous than we would like," Bernanke said. Write to Kerri Panchuk.