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Economy is gaining, but not enough to dent unemployment rate

WASHINGTON — The economy is showing signs of modest improvement — not enough to reduce high unemployment but enough to ease fears that another recession might be near.

Fewer people applied for unemployment benefits last week and the economy grew slightly more in the April-June quarter than previously estimated. Growth is also expected to tick up in coming months.

Last week, applications for unemployment benefits dropped 37,000 to a seasonally adjusted 391,000. That was the fewest since April 2.

The economy expanded at an annual rate of 1.3 percent in the April-June quarter, up from an estimate of 1 percent a month ago, the Commerce Department said. The improvement reflected modestly higher consumer spending and a bigger boost from trade.

Even so, the economy grew at an annual rate of just 0.9 percent in the first six months of the year. That's the weakest six-month performance since the recession ended more than two years ago.

Some of the news Thursday wasn't encouraging. Chief executives of the nation's largest companies are more pessimistic than they were just three months ago, according to a survey by a trade group, the Business Roundtable.

Only about one-third of the CEOs said they plan to hire or boost spending in the next six months. That's down from about half who said so in June.

Weak consumer spending, high unemployment and financial market turmoil could slow growth for the rest of this year.

Most economists don't expect another recession. But they also don't see growth accelerating much. Many foresee a rebound to between 2 and 2.5 percent growth in the current quarter.

A forecasting panel for the National Association for Business Economics predicts that growth for all of 2011 will be just 1.7 percent.

Many economists expect similarly tepid growth in 2012 and 2013. The economy would need to grow consistently at 4 to 5 percent to generate enough hiring to lower unemployment significantly.

"Growth remains sluggish and insufficient to reduce the unemployment rate," Ryan Sweet, an economist at Moody's Analytics, said in a note to clients.

The unemployment rate was stuck at 9.1 percent in August for the second straight month. Employers didn't add any jobs in August — the weakest showing in nearly a year.

Economists expect little if any improvement in hiring for September. Sweet thinks employers will have added 50,000 jobs this month. More than twice as many jobs would be needed just to keep up with population growth.

Others are gloomier. Capital Economics predicts that the economy in September will have failed for a second straight month to create any jobs. The main problem, the firm says, is that businesses don't think their customer demand justifies adding workers.

Economy is gaining, but not enough to dent unemployment rate 09/29/11 [Last modified: Thursday, September 29, 2011 9:09pm]
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