Business

Published: Friday September 4, 2009 MYT 7:39:00 AM
Updated: Friday September 4, 2009 MYT 3:00:47 PM

Improving US economy not likely to lower jobless rate(update)


WASHINGTON: The U.S. economy is showing consistent signs of improvement, but probably not enough to stop employers from cutting jobs or to keep the unemployment rate from rising.

The Labor Department is expected to report Friday that the jobless rate increased to 9.5 percent in August, from 9.4 percent in July, as employers cut 225,000 jobs.

The employment report will follow other recent data that shows the economy is pulling out of the worst recession since World War II.

A trade group reported Tuesday that the manufacturing sector grew in August for the first time in 19 months, while home sales have increased for several months.

But the economy isn't expected to grow strongly enough this year to persuade companies to ramp up hiring.

Most economists expect the unemployment rate to top 10 percent by early next year. "We have a very long, painful healing process ahead," said Bruce Kasman, chief economist at JPMorgan Chase & Co.

"The good news is we're starting it, the bad news is we need much faster growth" to bring the employment rate down.

A loss of 225,000 jobs would be the smallest monthly decline since last year, a sign that layoffs are easing.

Employers cut 247,000 jobs in July, compared with an average of 691,000 per month in the first quarter.

Still, the job cuts are holding down wages and salaries, while credit remains tight and home prices and stock portfolios have fallen.

All those trends are restraining consumer spending, which makes up 70 percent of the U.S. economy, and could weaken the recovery.

Most retailers posted sales declines last month as shoppers limited back-to-school purchases to focus on necessities.

Discounters did better than upscale chains, but the results Thursday raised further concern about the upcoming holiday season.

Other economic news on Thursday was mixed.

The Institute for Supply Management, a trade group, said the service sector inched closer to growth in August, but still contracted for the 11th straight month.

The ISM's services index, which covers hospitals, retailers, financial services companies and more, rose to 48.4, up from 46.4 in July.

Still, readings below 50 indicate the sector is shrinking.

In a separate report, the Labor Department said the number of laid-off workers applying for benefits dipped to 570,000 last week from an upwardly revised 574,000.

That was a weaker performance than the drop to 560,000 claims that economists projected.

The number of people receiving jobless benefits totaled 6.23 million, up 92,000 from the previous week, which had been the lowest level since April.

Economists closely watch initial claims, which are considered a gauge of layoffs and an indication of companies' willingness to hire new workers.

First-time claims have trended down in recent months and are below the recession's high of 674,000, reached in the first week in April.

But even with the improvement, they are running at levels well above the 325,000 mark considered a sign of a healthy economy.

Federal Reserve policymakers said in minutes from an August meeting, released Wednesday, that they expect the economy to recover in the second half of this year.

But labor market conditions are still "poor," the Fed minutes said, and many companies are likely to be "cautious in hiring" even as the economy picks up.

Many economists credit the Obama administration's $787 billion economic stimulus package of tax cuts and spending increases, along with the Cash for Clunkers program, with helping spur the recovery.

But they worry about what will happen when the impact of the stimulus efforts fades next year.

Vice President Joe Biden issued an upbeat report card on the economy Thursday, saying that the massive stimulus program had been more effective "than we had hoped." - AP

Earlier report

More US jobless claims show labor market may slow economic recovery

WASHINGTON: New claims for jobless aid fell less than expected last week, and the number of Americans continuing to receive unemployment benefits rose - further signs that any economic recovery will be hindered by a weak job market and flat incomes.

Most economists think the recession is over, but they say the jobless rate will keep rising until at least next summer as the economy struggles to mount a sustained recovery.

That means household incomes will remain depressed and consumer spending, which accounts for 70 percent of the economy, will continue to lag.

"Firms are still not hiring, and that reflects deep pessimism about the sustainability of the economic recovery once government stimulus programs wear off," said Sal Guatieri, senior economist at BMO Capital Markets.

"The lack of job creation remains a big headwind for cash-starved and credit-constrained consumers."

The nation's major retailers on Thursday reported lackluster results from August back-to-school sales.

Results in established stores fell 2.1 percent in August compared with the same month last year, a compilation of 31 retailers' results by the International Council of Shopping Centers and Goldman Sachs indicated.

Some major discounters managed to exceed expectations.

The Labor Department said the number of laid-off workers applying for benefits dipped to 570,000 from an upwardly revised 574,000 the previous week.

That was a smaller improvement than economists had expected.

The number of Americans continuing to receive benefits jumped to 6.23 million, up 92,000 from the previous week and a troubling reminder of the difficulty people are having finding jobs.

The continuing claims data lag new claims by one week.

The recession, which began in December 2007, has eliminated a net total of 6.7 million jobs.

That toll is expected to grow on Friday, when the government reports the unemployment rate for August.

Economists predict the jobless rate, now at 9.4 percent, will rise to 9.5 percent, with 225,000 net job losses in August.

Guatieri and other analysts said job losses for August might turn out even larger - perhaps topping the 247,000 jobs lost in July - because of the weakness in the unemployment claims figures.

"Employers are nervous that the economy is growing only because of policy stimulus and that when the stimulus fades, it will weaken again," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

Christina Romer, a top Obama economic adviser, said last week that unemployment could reach 10 percent this year.

And some private economists are forecasting it will hit 10.3 percent next summer before starting to improve.

Guatieri expects it to remain near 10 percent for most of next year.

On Wall Street, stocks gained after a four-day slide but investors refrained from making big moves ahead of Friday's report on unemployment.

The Dow Jones industrial average added nearly 64 points and broader indices also rose.

In another report Thursday, a key gauge of activity in service industries, which account for about 80 percent of U.S. economic activity, edged up to 48.4 in August from 46.4 in July.

It was the best reading by the Institute for Supply Management's service-sector survey in 11 months.

And it pushed the index closer to topping 50, the dividing line between contraction and expansion.

Earlier this week, the ISM reported that its manufacturing gauge hit 52.9, the first over-50 reading since January 2008.

Analysts said manufacturing fared better in August in part because it had received a boost from the government's most successful stimulus program yet, the Cash for Clunkers deals that spurred auto sales.

The Obama administration issued an upbeat assessment of the economy on Thursday.

Vice President Joe Biden said the government's $787 billion economic stimulus program had exceeded expectations and changed the trajectory of the economy.

"Instead of talking about the beginning of a depression, we are talking about the end of a recession," Biden said in a speech at the Brookings Institution.

But some Republicans charged that Biden's comments ignored the fact that millions of Americans remain unemployed.

Economists closely watch initial jobless claims, which are considered a gauge of layoffs and a sign of companies' willingness to hire new workers.

Claims are well off the recession's high of 674,000, hit in the first week in April.

But they are still running far above the 350,000 that many economists view as a sign of a healthy labor market.

The Labor Department report showed that the four-week average of initial jobless claims edged up to 571,250 last week, compared with 567,250 the previous week.

When federal emergency programs are included, though, the total number of jobless benefit recipients was 9.14 million people in the week that ended Aug. 15, down from about 9.18 million the previous week.

Congress has added up to 53 extra weeks of benefits, on top of the 26 typically provided by the states.

In the chain store sales report, discounter Target Corp. and warehouse club operators Costco Wholesale Corp. and BJ's Wholesale Club Inc. said sales at established stores dropped but beat analyst expectations.

A 5 percent jump at TJX Cos., which operates discount chains TJMaxx and Marshall's, topped expectations.

But upscale retailers, including Saks Inc. and Nordstrom Inc., reported a weak month. - AP


Latest business news from AP-Wire

  • E-mail this story
  • Print this story