Economic forecasts expected to improve on jobs data

Expect economic forecasts to reflect a brighter hue in the next month on improving jobs data, a leading economist said on Tuesday. 

Mark Zandi, chief economist for Moody's Analytics, told the Joint Economic Committee that he expects the Congressional Budget Office and other economists, to raise their yearly forecasts after the economy created 243,000 jobs in January and the jobless rate fell to 8.3 percent. 

"An unemployment rate below 8 percent by the end of 2012 and closer to 7 percent by the end of 2013 now appears possible." he said. 

That is well ahead of his most recent forecast of 8.8 percent last month before the most recent jobs report on Friday as the labor market shows broader strengthening across all sectors. 

"Forecasts will be marked down in the next month to about 8.2 percent and 8.3 percent," he said. 

The CBO and Fed recently released some dismal figures showing unemployment rising this year to almost 9 percent and 8.2 percent, respectively. 

Sen. Mike Lee (R-Utah) grilled the well-known economist, saying the improvements the unemployment numbers were being driven by a shrinking labor force. 

But Zandi argued that the numbers engaged in the workforce has held steady "nearly constant" since August. 

"The recent rapid drop in the unemployment rate is real, resulting primarily from more jobs and not from a declining labor force," he said. 

He expects that labor force growth "is likely to remain soft in coming months, suggesting that even with only modest job growth, the unemployment rate will fall further and more quickly."

"Not until unemployment falls meaningfully below 7 percent will wage growth pick up enough to draw more potential workers back into the labor force," Zandi said in his prepared testimony. 

Although he said it is premature to say that the economy is "off and running" he did say that "we're close to the light switch going on."

He says businesses are at a point where they are ready to grow, a signal they will pick up hiring. 

For the economy to march onward toward a more robust recovery, Congress needs to pass a payroll tax cut and unemployment benefits extension.

"We don't want to take the chance that we let that lapse because the cost to taxpayers is measurably more significant without it," he said. 

"It's an insurance policy for the economic recovery."

Panel Chairman Bob Casey (D-Pa.) and Vice Chairman Kevin Brady (R-Texas), most members of the 20-lawmaker conference committee reiterated that they expect the conferees to reach an agreement on a bill despite the hurdles, including a lack of time, it faces.