Early in the recession, the government's forecasts were far too optimistic. In 2009, for instance, the White House forecast that with or without the stimulus, unemployment would be back below seven percent by now. Now, however, their forecasts -- and those of many private-sector forecasters -- are beginning to look too pessimistic.


Job seekers attend a career fair in midtown Manhattan on Feb. 6 in New York City. (Spencer Platt/GETTY IMAGES)

Alan Krueger, the chairman of the Council of Economic Advisers, told the New York Times that he now believes unemployment could be below eight percent a year from now. And he's not alone. Mark Zandi, head of Moody's Analytics, is now projecting 7.9 percent unemployment at the end of 2012.

These aren't tremendously optimistic forecasts. As Calculated Risk notes, assuming no change in the labor-force participation right, you could get to 7.7 percent unemployment at the end of 2012 with monthly payroll growth of about 200,000. If monthly payroll growth was 250,000, you could get to 7.3 percent unemployment.

Of course, that assumes monthly payroll growth will remain at the levels of December and January. But this isn't the first time we've had a few good months in a row. During the first four months of 2011, the economy added an average of 203,000 jobs a month. That's a higher average rate of job growth than we've seen over the last four months, but that recovery sputtered out. This one could, too.

Which is why it would be wise for policymakers not to get complacent. In a perfect world, we wouldn't just smoothly extend the payroll tax cut and the unemployment benefits, but we would begin a large program of infrastructure investment, and we would pass a deficit-reduction package that began in 2014, and the Federal Reserve would step up with a bit more support for the economy. All of that would tell businesses and consumers that the political system is united in protecting and sustaining this recovery, and help convince them that this time, finally, the recovery might be real, and so they had better act quickly to take advantage of record-low interest rates, and to hire more workers to meet rising demand.

The other option -- perhaps the more likely option -- is that Congress could imperil the recovery by failing to extend the payroll tax and the UI benefits, which could shave as much as a point off growth this year, and signaling it will fail to come to a deal on the Bush tax cuts and the sequester, which could shave even more than a point off growth next year. In that case, businesses and households would have every reason to expect the recovery is likely to sputter out again, and so they'll have every reason to refrain from hiring and investing, which will, in turn, assure the recovery sputters out again. If that happens, then maybe the administration's forecasts won't prove so pessimistic after all.

Top stories

1) Greek debt talks again broke up without agreement, report Matthew Dalton, Stephen Fidler and Nektaria Stamouli: "Officials on Wednesday assembled the pieces of a complex debt and bailout deal for Greece, but broad Greek political support for the accord, a key piece of the puzzle sought by the government's international creditors, remained elusive after hours of talks among the main political parties. A meeting among Greek Prime Minister Lucas Papademos, the parties supporting his coalition, and New Democracy, the opposition conservative party, broke up early Thursday morning without an agreement on economic overhauls sought by the European Union and the International Monetary Fund in exchange for lending an additional €130 billion ($170 billion) to the Greek government."

@ObsoleteDogma: Hey, remember that time that Greece & the Troika had agreed on a deal, and then they didn't? That was so fun, we're doing it again & again!

@jbarro: A cut in Greece's nominal minimum wage will be v controversial. If they had their own currency, they could easily cut the real minimum wage.

2) States and banks have agreed to a $26 billion settlement for homeowners, report Nelson Schwartz and Shaila Dewan: "After months of painstaking talks, government authorities and five of the nation’s biggest banks have agreed to a $26 billion settlement that could provide relief to nearly two million current and former American homeowners harmed by the bursting of the housing bubble, state and federal officials said. It is part of a broad national settlement aimed at halting the housing market’s downward slide and holding the banks accountable for foreclosure abuses. Despite the billions earmarked in the accord, the aid will help a relatively small portion of the millions of borrowers who are delinquent and facing foreclosure....Still, the agreement is the broadest effort yet to help borrowers owing more than their houses are worth, with roughly one million expected to have their mortgage debt reduced by lenders or able to refinance their homes at lower rates."

@RBReich: $26 billion settlement with banks over mortgage fraud is far short of what they should pay and distressed home owners deserve.

3) Treasury reached an international agreement to crack down on foreign tax dodging, report John McKinnon and Laura Saunders: "The Treasury Department and the governments of five European nations reached broad agreement Wednesday on a proposal to prevent U.S. taxpayers from dodging taxes through foreign accounts. At the same time, the Treasury and the IRS also released proposed regulations to implement a 2010 U.S. law known as the Foreign Account Tax Compliance Act, which requires foreign financial institutions to report detailed information about U.S. account holders to the IRS and possibly withhold taxes on individual accounts. If firms don't comply, they could face U.S. tax penalties. An agreement among the U.S. and the other countries could help streamline implementation of the law."

4) Government forecasts are showing a more optimistic jobs picture, reports Jackie Calmes: "Drawing on a string of improved economic data, advisers to President Obama have updated their forecasts in recent days and now project that the economy will create two million jobs this year if stimulus measures are extended, which could reduce the unemployment rate to about 8 percent by year’s end...The budget will project an average unemployment rate of 8.9 percent for 2012 and 8.6 percent for next year, based on economic conditions that prevailed in mid-November. But unemployment in January surprisingly dropped to 8.3 percent, for the fifth straight monthly decline, suggesting a downward trend that would have to reverse sharply to produce an annual average of 8.9 percent."

5) A scaled back insider-trading bill is moving forward in the House, reports Paul Kane: "A scaled-back ethics bill headed toward likely passage in the House on Thursday despite complaints from senators that Republican leaders had jettisoned several key provisions that won overwhelming Senate support last week. House Majority Leader Eric Cantor (R-Va.) unveiled legislation that formally bans lawmakers and staff members from making financial trades based on non-public information they receive in their positions. Rather than holding an open, freewheeling debate, as the Senate did last week, House Republicans have put the ethics legislation on a fast-track schedule that forbids amendments and requires a two-thirds majority for passage."

Top op-eds

1) Romney offers only tweaks to government, writes Peter Suderman: "The gap between Romney’s cautious proposals and the GOP grassroots’ anti-spending fervor might seem like a paradox, but it’s easy to see how it came about. The last time Republicans held power in Washington, they jacked up discretionary non-defense spending by more than 60 percent, passed a new prescription drug entitlement, created a major new security bureaucracy that now costs $50 billion a year, and helped pass a $150 billion economic stimulus plan. The party’s most recent nominee for president was so enthusiastic about the Troubled Asset Relief Program that he suspended his campaign to help it pass. In running an election roadshow that rails against bad policy while proposing only to tinker with it, Romney is holding up a mirror to the weaknesses and internal contradictions of the client he’s pitching. He is doing what top management consultants always do: presenting the customer with a slicker, better packaged, but fundamentally unchanged version of itself."

2) The white working class need pathways out of poverty, writes Nicholas Kristof: "Persistent poverty is America’s great moral challenge, but it’s far more than that. As a practical matter, we can’t solve educational problems, health care costs, government spending or economic competitiveness so long as a chunk of our population is locked in an underclass. Historically, 'underclass' has often been considered to be a euphemism for race, but increasingly it includes elements of the white working class as well...A crisis is developing in the white working class, a byproduct of growing income inequality in America. The pathologies are achingly real. But the solution isn’t finger-wagging, or averting our eyes -- but opportunity."

3) Weak economies in swing states could hurt Obama, writes Ezra Klein: "As Al Gore can tell you, presidential elections are not won nationally. They’re won in individual states. In particular, they’re won in the small subset of states that can tip either way, the so-called swing states. There, Obama isn’t doing so well -- perhaps because, in those states, the economy isn’t doing so well...Obama will be running in swing states where the regional economy is somewhat worse than the national economy. In some of those states, he’ll be contending with an economy that’s much worse than the national economy. Florida, for instance, has a 9.9 percent unemployment rate in addition to its housing decline. It’s a bit early to say how much this matters. Political scientists insist that elections aren’t decided by fixed economic data so much as by moving economic trends. There’s little evidence that Americans vote based on the unemployment rate or the gross national product. Rather, they vote based on the change in the unemployment rate and the change in the gross national product."

4) The Dow is an unreliable economic indicator, writes Adam Davidson: "Why do we still care so much about the Dow? It remains not only a rough measure of stock performance but also the most frequently checked, and cited, proxy of U.S. economic health. It’s clear why we used to care. In the postwar boom of the 1950s, the economy was growing so fast, and the benefits were so widely shared, that following 30 large American companies was a solid measure of most everyone’s personal economy. Back then, the U.S. was a largely self-sufficient country, so Asian or European economic troubles didn’t matter much. There was less national inequality, and everyone’s income tended to move in the same direction. What was good for G.M. really was good for the country. By the late 1990s, however, the Dow stopped being an indicator of how our economy was doing...It would be extremely convenient if there were still one number or index we could check to make sense of our economy, especially during times of chaos. But the stock market might actually be our worst option."

5) Sarbanes-Oxley worked -- and shows how Dodd-Frank can succeed, writes Jesse Eisinger: "As fears mount that Dodd-Frank, the financial overhaul law, is about to be emasculated, it's worth reflecting on the 10-year anniversary of a major regulatory success. I'm speaking of the mocked, patronized and vilified Sarbanes-Oxley, the law that cleaned up American corporate accounting...Is there a lesson to draw here for the prospects of Dodd-Frank? The new law is more sweeping, more pilloried and more complicated. It is concentrated on one industry, which allows for a more unified opposition. Importantly, a round of perp walks and prison terms didn't accompany the law. Quite the contrary, the people responsible for the greatest economic collapse since 1929 have all danced away untouched. But for all of the criticisms of Dodd-Frank, there has been a societal change in our views. Few can sustain an argument in favor of a gigantic, self-serving and rapacious financial sector. Some kind of financial reform law was -- and still is -- needed."

Music video interlude: The Black Keys "Gold on the Ceiling".

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Still to come: A slowed anti-foreclosure push; the largest insurer overhauls how it pays doctors; Obama will propose cuts to some space programs; after decades, a new nuclear reactor is set to move forward; and an unlikely pair of cubs team up.

Economy

The S&P hit a seven month high, reports Rita Nazareth: "U.S. stocks advanced, pushing the Standard & Poor’s 500 Index to a seven-month high, as Greek Prime Minister Lucas Papademos began talks with political leaders on terms required for a bailout...'There’s just a news vacuum,' James Paulsen, who helps oversee about $333 billion as chief investment strategist at Minneapolis-based Wells Capital Management, said in a telephone interview. 'If you just get Greece to come out with anything, you can actually maybe have people move on. I do think they are going to come out with some sort of agreement. That would be a big step forward in dealing with Europe’s debt crisis.'"

The House passed a line-item veto bill, reports Pete Kasperowicz: "The House on Wednesday approved legislation that would allow Congress to quickly consider budget rescission recommendations made by the president, a proposal that many Republicans and Democrats said could help reduce the budget deficit. Members approved the Expedited Legislative Line-Item Veto and Rescissions Act, H.R. 3521, by a 254-173 vote...The bill differs from the line-item veto authority that President Clinton had in the mid- to late 1990s, which he could use to veto specific spending proposals within an overall bill. That authority was found to be unconstitutional, since it gave the executive branch the power of the purse, which rightly belongs to Congress."

The GOP is making a new push to undermine the CFPB, reports Suzy Khimm: "Republicans couldn’t stop President Obama from installing Richard Cordray as director of the Consumer Financial Protection Bureau. But they hope they can rein the bureau in by passing legislation. The House GOP is now moving forward with bills that would remove the CFPB director from overseeing the Federal Deposit Insurance Company and allow Congress to directly control its funding every year. The bills are DOA in the Democrat-controlled Senate. But the GOP’s new bills provide a clear guide to what is likely to happen to the CFPB if Republicans take full control of Congress and/or the White House. "

Movie trailer interlude: Tony Gilroy's The Bourne Legacy.

Health Care

@delrayser: Hey, remember GOP mocking Stephanopoulos for asking about contraception at a debate? Hahaha! Like that'd ever be an issue in this campaign!

Congressional Republicans are pushing for repeal of the new contraception coverage rule, reports Jennifer Haberkorn: "Congressional Republicans on Wednesday began prepping legislation to repeal the Obama administration’s contraception coverage rule, promising to engage in what they call President Barack Obama's war on religious liberties...Last month, the White House rejected a request from religious groups to expand the health care law’s exemption for religious institutions that don’t want to provide birth control and other contraceptives in their employer health insurance plans because it conflicts with their religious beliefs. In a floor speech, House Speaker John Boehner said the administration 'has drifted dangerously beyond its constitutional boundaries, encroaching on religious freedom in a manner that affects millions of Americans and harms some of our nation's most vital institutions.'...He promised the House would move quickly with legislation repealing the provision."

The nation's largest insurer is overhauling how it pays doctors, reports Anna Wilde Mathews: "Efforts to change how Americans pay for health care are gathering momentum on a national scale as UnitedHealth Group Inc., the largest U.S. health insurer, becomes the latest carrier to say it is overhauling its fees for medical providers. UnitedHealth, like other insurers, is targeting the traditional system that pays hospitals and doctors for each service provided, rewarding them for more care but not necessarily better care. Under the new plan the carrier is rolling out, part of medical providers' compensation could be tied to goals such as avoiding hospital readmissions and ensuring patients get recommended screenings."

Teen pregnancy fell to a record low, reports James Kelleher: "Birth and abortion rates among U.S. teens fell to record lows in 2008 as increased use of contraceptives sent the overall teen pregnancy rate to its lowest level since at least 1972, a study showed on Wednesday. But disparities among racial and ethnic groups continued to persist, with black and Hispanic teens experiencing pregnancy and abortion rates two to four times higher than their white peers, the Guttmacher Institute, the nonprofit sexual health research group that conducted the analysis, said...They found that nearly 750,000 U.S. women under the age of 20 became pregnant in 2008 -- nearly 98 percent of them between the ages of 15 and 19."

Domestic Policy

Obama's budget will propose cuts to some space programs, reports Brian Vastag: "The budget coming Monday from the Obama administration will send the NASA division that launches rovers to Mars and probes to Jupiter crashing back to Earth. Scientists briefed on the proposed budget said that the president’s plan drops funding for planetary science at NASA from $1.5 billion this year to $1.2 billion next year, with further cuts continuing through 2017. It would eat at NASA’s Mars exploration program, which, after two high-profile failures in 1999, has successfully sent three probes into Martian orbit and landed three more on the planet’s surface."

No Child Left Behind paved the road for today's education reforms, reports Stephanie Banchero: "The Obama administration is close to granting several states waivers from the No Child Left Behind law, its strongest move yet to undermine the decade-old education initiative. But while the law has become a target of criticism from both political parties, it has also sown the seeds for school changes spreading nationwide...The testing triggered by the law, however, helped researchers gather a wealth of data on student progress in annual math and reading exams. And that fed a growing argument that reforms need to focus on individual teachers. The shift has upset teachers, but won support from both Republicans and Democrats. Mr. Obama's waiver package and draft legislation by House Republicans both insist that districts evaluate teachers based, in part, on student achievement."

Interspecies friendship interlude: A grizzly bear cub and a wolf cub play together.

Energy

Regulators are set to O.K. the first nuclear reactor in decades, reports Matthew Wald: "For the first time in over three decades, the Nuclear Regulatory Commission is expected to decide to grant a license to build a nuclear reactor -- a milestone for an industry whose long-hoped-for renaissance is smaller and later than anticipated. The vote, set for Thursday, is on two new reactors at the Southern Company’s Alvin W. Vogtle plant near Augusta, Ga. It would be the first vote on a construction license since 1978, a year before the Three Mile Island accident in Pennsylvania...Natural gas prices are at low levels, and pressures to address global warming by putting a price on carbon emissions have faded, diminishing hopes that nuclear energy will be championed as a cleaner alternative to fossil fuels."

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.