Leamer said that significant reductions in the unemployment rate require real Gross Domestic Product (GDP) growth in the 5 percent to 6 percent range. Normal GDP growth is 3 percent, enough to sustain unemployment levels, but not strong enough to put Americans back to work. As a consequence, consumers concerned about their employment status are reluctant to spend and businesses concerned about growth are reluctant to hire.
UCLA Anderson’s forecast for GDP growth this year is 3.4 percent, followed by 2.4 percent in 2011 and 2.8 percent in 2012, well below the 5 percent growth of previous recoveries and even a bit below the 3 percent long-term normal growth.
With this weak economic growth comes a weak labor market and unemployment slowly declines to 8.6 percent by 2012, the report predicts.