The most immediate domestic threat to reaching full national employment is the continuing foreclosure crisis and the possibility that house prices will sink further, says Mark Zandi, chief economist for Moody’s Analytics.
The national economy is expected to grow around 2.5% through mid-2013, before accelerating to 4% by mid-2014. At this pace, Zandi says, full employment, defined as an unemployment rate just under 6%, should be achieved by late 2015.
He predicts unemployment will submerge below 8% by the end of 2012 and stand close to 7% by the end of 2013.
However, much depends on how many of the 3.6 million loans in or near foreclosure will result in distressed sales during the coming year, he warns.
"While investor demand for distressed property appears strong and house prices are not expected to fall much if at all, it is not hard to envisage darker scenarios," Zandi says. "Until house prices are consistently rising, the economic recovery won’t fully engage."
But analytics provider Fiserv forecasts that home prices, which have fallen nearly 8% each year since 2006 and are still declining, will rise 4% a year for the next five years. Fiserv sees prices stabilizing by year-end and then begin to climb in 2013.
Zandi cites the never-ending European debt crisis, a possible hard landing in the emerging world, and the chance of a slipup in negotiations with Iran that could produce a new oil shock as international threats to the nation's economic recovery.
U.S. policymakers are taking incremental steps to address the foreclosure crisis, and the European Central Bank appears dedicated to keeping the euro zone together. And policymakers in the emerging world are aggressively easing monetary policy to cushion any slowdowns in their economies.
“Although not all will go smoothly, the U.S. economy’s fundamentals are firming, putting it in better position to handle whatever comes,” Zandi says.