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Archive for Saturday, September 5, 2009

Recovery difficult as U.S. jobless rate hits 26-year high

September 5, 2009

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— At least it’s not all bad anymore.

The nation’s unemployment rate climbed last month to 9.7 percent — the highest in nearly a generation — but the number of job losses was less than expected and the smallest monthly total in a year.

“It’s good to see the rate of job losses slow down,” said Nigel Gault, chief U.S. economist at IHS Global Insight. But with unemployment rising, “there isn’t the underlying fuel there for strong consumer spending growth,” which is vital for a strong recovery.

Employers shed 216,000 jobs in August, the Labor Department said Friday. That was 9,000 fewer than expected but a far cry from the job creation required to rejuvenate the economy: about 125,000 new jobs each month just to keep the unemployment rate from increasing.

The unemployment rate rose three-tenths of a percentage point since July, reaching its highest level since 1983, when it was 10.1 percent. Economists predict that the jobless rate will peak above 10 percent by the middle of next year.

At the same time, many analysts say the economy should grow by a healthy 3 to 4 percent in the third quarter, pulling the United States out of the longest recession since World War II.

Most of that improvement, though, stems from auto companies and other manufacturers refilling their depleted stockpiles.

Those inventories had plummeted as factories and retailers sought to bring goods more in line with reduced sales during the recession. Without stepped-up demand from consumers, any current economy growth might not last.

The Obama administration’s $787 billion stimulus package of tax cuts and increased spending contributed to the improvement, along with the popular Cash for Clunkers program. The clunkers program provided up to $4,500 in rebates to consumers who traded in old gas-guzzlers for newer models.

An $8,000 tax credit for first-time home buyers has also helped boost housing sales and stabilize prices, after years of declines.

Yet economists worry that none of that will be enough to sustain an economic recovery once the government’s efforts fade. As job losses persist and the unemployment rate climbs, even people with jobs will remain anxious about losing them and about spending too much.

Complicating the problem is that even people with good jobs are likely to remain tighter with their money for years to come.

Having suffered deep losses in their home equity and stock portfolios, and still stuck with heavy debt loads, Americans will not spend as freely as they did before the recession.

Some economists even fear a so-called “double-dip” recession, which would cause the economy to shrink again next year.

“That’s one of the reasons why businesses are reluctant to hire people,” said Sung Won Sohn, an economics professor at Cal State University, Channel Islands. “They’re not at all sure the economic bottoming is for real.”

Gault does not foresee a double-dip recession. But he thinks that the economy, after growing at a 3.7 percent pace in the current quarter, will slow to 2 percent growth in the first three months of next year.

For now, the August unemployment report sketched a bleak portrait of the job market. The number of jobless Americans jumped by nearly 500,000 to 14.9 million.

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