Metrics to Watch in 2010: Confidence, Unemployment

As part of its 2010 preview, PBS NewsHour asked some top economists what they think will be the key economic metric to watch in 2010.

Robert Shiller, the Yale economist and housing bust predictor, says the key metric will involve confidence — specifically question x4 of the survey used in the Michigan Consumer Sentiment Index. The question reads: “Looking ahead, which would you say is more likely — that in the country as a whole we’ll have continuous good times during the next five years or so, or that we will have periods of widespread unemployment or depression, or what?”

Shiller says he likes the question because it relates to long-term expectations. “Those expectations are relevant to the kind of essential business decisions that will affect permanent hiring decisions and willingness of businesses to seriously commit to new activities, key factors in lifting us out of the recent economic collapse,” he says. “The question also focuses on the risk of economic depression. Fear of depression seems to have been a major factor in the severity of our recent crisis, and the fear is still often expressed.”

The x4 confidence level has been on a downward trend since 2000, Shiller notes. He says we’ve seen two prior upward surges in the index since then, in 2002 and from 2005, but each was followed by collapse of x4 confidence to new lows. “I hope to see a steadying of x4 confidence, but worry that it may yet collapse to newer lows yet,” he says.

Mark Zandi, chief economist of Moody’s, points to a more well-known metric: initial claims for unemployment. “Weekly claims are down from over 600k per week at the start of the year to 450k currently,” he says. “350k would be consistent [with] a stable unemployment rate and unemployment will fall with claims near or below 300k.”

Zandi also says lending by banks to businesses also must stop declining, and confidence must revive. He expects that the economy will be better off a year from now than it is currently, though the recovery won’t be a roaring one. Unemployment will remain near “a very uncomfortably high 10 percent”, he says, but job growth will have resumed and unemployment will be headed lower, he predicts.

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