While the bulk of the recent data have been very weak, the most disturbing has been the sharp loss of momentum in private sector employment growth. The key assumption of our old forecast was that a solid pick-up in employment would allow a smooth hand-off between fiscal stimulus and private sector income. This hand-off has looked shaky, and under our new forecast, will look even shakier. Under the weaker growth trajectory we are now penciling in:
Private payrolls manage tepid monthly gains of just 25,000 through the end of 2010. As the growth recession fades in the second half of 2011, gains in private payroll employment should accelerate. We expect average monthly gains of 125,000 in the fourth quarter of 2011.
Therefore, for most of 2010 and 2011, employment growth is not expected to keep up with the rise in the labor force, which means the unemployment rate heads north. We expect a steady increase to 10.1% by the second quarter with a slow fall slightly below 10.0% by the end of 2011.