U.S. Unemployment-What Lies Ahead.

Unemployment in the U.S. which has already reached 9.5% is predicted to hit 9.6% when the next jobless figures are released. If this wasn't bad enough everybody from Obama and Geithner to Roubini predict that job losses will only get worse and probably cross 10% by the end of the year. They are expected to peak at about 10.6% sometime next year and decline gradually thereafter. This gloomy prediction comes amidst signs that the economy may be bottoming out.

These numbers are very significant for U.S. policy makers given that consumption expenditure accounts for almost 70% of U.S. G.D.P. Growing unemployment threatens to cap any rebound that the economy may witness as businesses rebuild inventories and residential housing stabilizes.Particularly difficult will be to time the withdrawal of stimulus funds from the economy. Economists the world over are warning that unless a plan to gradually withdraw excess liquidity is put in place, the world may witness runaway inflation and the consequences that follow. On the flip side, any increase in interest rates threatens to derail a fragile economic recovery.

Just how bad is the unemployment problem? It's really bad. The official unemployment figure of 9.5% only tells half the story. There are many more who are working only part time or have dropped out of the labor force.Making things worse is that the U.S. savings rate has shot up from 0% to almost 8%. At the same time those who want to spend are unable to borrow. Given that the value of household assets,be it homes or stocks, has plummeted even creditworthy consumers can no longer borrow as much as they used to before. In this scenario, given the dependance on consumption, the U.S. economy can create only a limited number of jobs in the near term.

Experts say that it will require sustained growth of 2.5% and above to create new jobs in the U.S. economy. Additionally, the tendency of U.S. corporates to outsource production to low cost centers outside the U.S. will need to be checked. Giving additional tax breaks if production is undertaken within the U.S. would be a welcome step.

Of late Bernanke sounds increasingly confident that things are under control. He has been joined by the former Fed chief Greenspan who too feels that the economy is on the mend. A few days back Bernanke had said that the Fed had been devoting considerable attention to issues relating to its exit strategy. He felt confident that the Fed has the necessary tools to implement the strategy when appropriate. He said 'We will not allow the broad measures of money circulating in the economy to rise at a rate that will cause inflation eventually'.