More optimism on 2010 growth prospects

We're starting to hear fewer of the "jobless recovery" forecasts, more projections of a fairly decent recovery. Janet Yellen forecasts GDP growth of around 3.5% in 2010 and 4.5% in 2011. Joseph Carson projects 3.7% in 2010. These numbers, of course, are less than satisfactory given that the economy has so far to go to full employment - Yellen, while centering her speech on a forecast considerably more optimistic than the consensus, argues with some passion that this rate of growth means we remain in dire circumstances for far too long.

But even this modest level of growth means that we'll have substantial growth in jobs over the next year. The surge in productivity growth in 2009 must have been a temporary phenomenon. I can't believe American businesses have figured out how to squeeze 5 percent or so more production out of the American workforce on a sustained basis. Most likely 2009's surge means that growth of productivity in 2010 will be below trend (this is the argument Bob and I made in our Financial Times piece in January). Trend productivity growth is supposed to be a little below 2 percent. If productivity growth in 2010 is a little under 1 percent, then the GDP growth forecasts above imply growth in hours of somewhere in the 2.5-3.0 percent range. Shave some off for an increase in the average work week, and it's easy to envision of 2 percent growth in jobs - roughly 2.6 million - and maybe more. This translates to over 200,000 jobs per month, far above the Obama Administration's forecast of 95,000, and a rate consistent with a fairly substantial drop in unemployment.