Forecasts Show That Challenges Remain
A new forecast for a bigger than expected decline in the U.S. economy this year has forced the Obama administration to increase its estimate for the federal budget deficit to $9 trillion from $7.1 trillion over the next decade. The administration also acknowledged for the first time today that the unemployment rate is likely to reach 10% by 2010. The Department of Labor put unemployment at 9.4% in July.
The numbers show that the downturn is deeper than the administration believed, and that while there is a trajectory pointing to recovery, it is likely to take many months or years to unfold. In a June article — "Economic Recovery: Are Happy Days Here Again?" — Knowledge at Wharton asked Wharton faculty about the prospects for recovery and found that even their most optimistic forecasts were tempered with concern about the pace and strength of the turnaround. "Many of the underlying problems remain — and we still haven't seen the worst in terms of consumer problems," said Mauro Guillen, Wharton professor of international management and sociology and director of the Lauder Institute at Penn. He listed some of these problems as ongoing mortgage woes for U.S. homeowners and a deepening crisis in consumer credit card debt, looming troubles for commercial real estate, and the ongoing issue of so-called "toxic assets" on the books of larger banks, which he said were likely to impede their ability to make the loans that would spur a recovery.
For more on the prospects for and challenges to recovery, see:
Deflation Fears: Could Falling Prices Let the Air Out of a Recovery?
Jeremy Siegel: 'The Market Will Stage Another Recovery'
Trade Wars: Will Protectionism Win out over Recovery?