By John W. Schoen, Senior Producer
Fresh data from the government Thursday showed the U.S. economy is barely keeping its head above water, with a growth rate that's?just too weak to help the 14 million American workers who can?t find a job.
The Commerce Department said the economy grew?at a 1.3 percent pace in the spring, up from the previous estimate?of a 1.0 percent growth rate.?That?s the government?s third and final revision for the snapshot of gross domestic product, the total output of goods and services produced by businesses and property in the U.S.
More recent data on weekly unemployment insurance claims offered a somewhat more upbeat picture. The number of workers who filed their first claim ? an indication of the pace of recent layoffs - fell to 391,000 in the latest week, from 428,000 the prior week, the government said. After weeks of rising fears that the financial turmoil in Europe threatened?to snuff out global economic growth, investors breathed a sigh of relief after seeing Thursday?s data.
?The larger-than-expected decline in jobless claims again cast[s] doubt on the likelihood of the economy tipping back into recession,? said Joe Manimbo, a market analyst at Travelex Global Payments.
But some analysts caution that the jobless claims data may have been skewed by seasonal adjustments. The so-called ?moving average,? which many economists say paints a truer picture of the job market, is running at more than 410,000 new insurance claims a month.
Though the numbers suggest positive growth is still under way, the recovery remains very fragile. The fear is that?with so little momentum, it wouldn?t take much to send the U.S. back into a recession that could be worse than the one which officially ended in 2009.
Faced with the threat of ongoing layoffs and a tough time finding work, consumers are holding back on spending and cutting back on debt ? a process economist call ?deleveraging.? Those who have a job aren?t getting raises. Many households are struggling to make their monthly mortgage payment or fill up their car?s gas tank.
With few signs?that the economy and job market are improving, consumer confidence last month plunged to recessionary levels. That survey followed a depressing display of government dysfunction as Congress and the White House deadlocked over a plan to balance the budget. The standoff cost the Treasury its AAA credit rating and sent the stock market tumbling.
?With households still deleveraging and a fiscal consolidation on the way, growth is unlikely to be as strong in the fourth quarter and beyond,? said economist Paul Dales at Capital Economics. We expect GDP growth of just 1.5 percent next year, which won't be enough to reduce the unemployment rate.?
Most economists expect growth will pick up only slightly in the second half of this year and continue on its weak pace next year. The National Association for Business Economics predicts total growth for 2011 will be just 1.7 percent.
Much of that growth is expected to come from continued?investment in equipment that allows businesses to increase profits with minimal new hiring. That trend has left more workers sidelined for longer periods than any economic cycle in 50 years. More than 40 percent of those out of work in August had been unemployed for six months; nearly a third have been jobless for more than year. When those who have given up looking for work are included, the number of unemployed Americans is closer to 25 million.
The longer the unemployment rate remains around 9 percent, the greater the risk that it remains more or less permanently elevated. Economists are divided on whether the stubbornly high rate is ?cyclical? -- the result of the worst recession since the 1930s ?- or ?structural? ?- brought about by fundamental changes in the job market. Some point to the so-called ?jobless recovery" of the relatively weak recession of 2001 as a sign that job growth may not pick up for some time.?
Some have pointed to the aging of the work force.?Lower-cost younger workers who get laid off tend to get re-hired faster than their older counterparts, who cost more in wages and in benefits. Others have argued that the emergency extension of unemployment benefits?to as much as 99 weeks in some states?tends to discourage people from taking their first job offer. The expansion in the number of lower-paying jobs in the past decade may also prompt job seekers to keep looking longer for a better wage.
Government policies that once helped boost employment have done little to turn around the dismal job market. After the Federal Reserve pushed interest rates to zero?and pledged to keep them there for another two years, businesses have failed to respond to the promise of ?easy money? that has historically helped get them in a hiring mood. More recently, Fed officials have considered using the unemployment rate as a target for monetary policy, a proposal that has deeply divided the central bank policy makers. Earlier this month, Chicago Fed President Charles Evans proposed setting interest rates with a goal of bringing the jobless rate to 7.5 percent.
The other major tool ? fiscal policy ? has also failed to make a dent in the jobless rate. After the economy collapsed in 2007, Congress approved an $800 billion package of tax cuts and spending projects to help jump start growth. Though job growth eventually revived earlier this year, it has since stalled. Last month, heavy budget cuts by state and local governments forced another round of layoffs that offset the meager growth in private sector jobs.
With the presidential campaign heating up, President Barack Obama has proposed another round of $447 billion in tax cuts and new spending. But the measure faces strong opposition from congressional Republicans.
The government?s fiscal policy, in fact, is on track?to reduce the $1.4 trillion budget deficit by slashing more spending. Some economists warn that those heavy budget cuts could?create?fresh new headwinds for the job market.?
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Source: http://bottomline.msnbc.msn.com/_news/2011/09/29/8036014-us-job-machine-remains-badly-broken
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