Unemployment Estimates Continue to Worsen: CBO Predicts Peak Over 10 Percent

ABC News' Matthew Jaffe and Charlie Herman report: The Congressional Budget Office said Thursday that the country's economy will start growing again in the second half of this year, but the unemployment rate will rise into the second half of next year and peak at a rate above 10 percent, just the latest in a series of worsening unemployment predictions from a variety of sources.

The new CBO forecast was made by their director Douglas Elmendorf in prepared testimony for a hearing Thursday before the House Budget Committee.

"The economy will stop contracting and resume growing during the second half of this year, but the hardships caused by the recession will persist for some time," Elmendorf said. "The growth in output later this year and next year is likely to be sufficiently weak that the unemployment rate will probably continue to rise into the second half of next year and peak above 10 percent. Economic growth over time will ultimately bring the unemployment rate back down to the neighborhood of 5 percent seen before this downturn began, but that process is likely to take several years."

His outlook for unemployment is more downbeat than the Federal Reserve's. The nation's central banker Wednesday revealed in the minutes from the last Federal Open Markets Meeting that it expects unemployment to rise to around 9.2 percent to 9.6 percent by the end of the year. The unemployment rate currently sits at a 25-year high of 8.9 percent.

Estimates for unemployment have worsened since last February when Christina Romer, chair of the Council of Economic Advisers, said the Obama administration anticipated that unemployment would average just over eight percent for 2009 overall.

In his prepared testimony, Elmendorf Thursday outlined reasons for optimism going forward, but also various causes for concern.

"On the positive side, the fiscal stimulus provided by the federal government is now beginning to boost the economy and financial markets show clear signs of improvement since the fall and the winter," he said. "Moreover, the sharp reductions seen in manufacturing production will keep inventories to leaner levels than would have occurred otherwise, so that upturns in sales, when they come, will lead to faster and larger increases in output."

"However," he then added, "many factors will temper the strength of the recovery: the loss of household wealth; the fragility of financial institutions; persistently weak growth in the rest of the world; a surplus of housing units on the market; and low utilization of manufacturing capacity. How much those factors will dampen the recovery is uncertain: They may be overcome relatively quickly by the jump start provided by the stimulus and improvements in consumer and business confidence, or they may cause the economy to slump again next year, as the effects of the stimulus begin to wane."

"Even if the economy returns to positive growth this year, the loss in output, income, and employment during the recession and the next few years will be huge," he later noted.

-- Matthew Jaffe & Charlie Herman

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