The paradox of this recovery, in two charts

The last few years have been hard on economists trying to predict the path of the U.S. economy. As a group, they keep forecasting fast growth just around the corner, only to be disappointed again and again.

That's even true of the forecasters at the Federal Reserve, whom Fed officials rely on as they set the course of monetary policy.

You can see just how badly the Fed predictions have missed in the following two charts, which come from a paper presented today at a central banking conference at Stanford University's Hoover Institution.

The author, Andrew Levin, is a researcher at the International Monetary Fund, and his pictures show how frequently Fed forecasters have overestimated future growth - while, at the same time, underestimating how fast unemployment will fall.

Andrew T. Levin, International Monetary Fund
Andrew T. Levin, International Monetary Fund

The point here isn't to pick on the Fed, or on forecasters. It's to say, there's a paradox in this recovery, which is, unemployment keeps coming down even as growth disappoints.

So what's going on? Levin runs some tests and concludes it's likely because the weak recovery keeps driving workers out of the labor force - to give up looking for jobs entirely. His results, he writes, "bolster the view that the unexpectedly steep decline in unemployment over the past few years is indeed related to the concomitant drop in labor force participation." So the charts look paradoxical, but really, they're both telling us the same thing: This economy still isn't strong enough.

Jim Tankersley is the editor of Storyline, where he explains complex public policies and illuminates their human impact.
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