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Economists still expect a slow decline in US unemployment rate

[NEW YORK] Economists scaled back their pessimism on the employment outlook for this year following the surprise improvement in the May jobs report, but they continue to see only a gradual decline in the jobless rate in 2021 and beyond.

Analysts expect an unemployment rate of 13.4 per cent in the second quarter, 2.7 percentage points lower than the prior month's poll, according to median estimates in a Bloomberg survey conducted from June 5 to June 10. While the fourth-quarter projection came down by 0.8 point to 9.5 per cent, the forecast for the end of 2021 was just 0.4 point lower, at 7 per cent.

What's more, annual forecasts for gross domestic product barely budged: Economists estimate that the US economy will contract 5.7 per cent in 2020, then expand by 4 per cent in 2021 and 2.8 per cent in 2022.

The expectation for a gradual recovery dovetails with Federal Reserve chair Jerome Powell's assessment this week that the economy is in a deep hole, warranting strong monetary and fiscal support. One issue that may hold back a faster rebound is the prospect of fading stimulus from federal unemployment benefits and small-business loans.

"We'll make progress because we are reopening, it will be quick and will look rapid, but it could come to a screeching halt in August and September when programmes start to run out," said Joel Naroff, president at Naroff Economics.

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The Bloomberg survey is roughly in line with Fed policy makers, who expect a jobless rate of 9.3 per cent in the fourth quarter of 2020, followed by 6.5 per cent in late 2021 and 5.5 per cent at the end of 2022, according to median projections released Wednesday.

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