While the news of 3.5% growth in the third quarter of 2009 is encouraging, a full recovery is quite a ways off. The most recent national unemployment rate estimate is 9.8% (seasonally adjusted). As Krugman notes in his blog yesterday, at the current growth rate, it will take about a decade for the unemployment rate to return to something approximating full employment. A Taylor rule policy would keep the Fed at a near-zero interest rate target for the next 6 years.
Unless the pace of economic growth rises, it’s going to be a slow recovery. The last two recoveries were referred to as “jobless recoveries” because unemployment started to improve long after real GDP growth rose. If this occurs again, the economic climate may not feel much better for a while.
… and we wonder why economics is still called the dismal science… It is, though, at least a bit less dismal than in the days of Ricardo and Malthus
