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Economy may end year on an upswing, but economists doubt unemployment will decrease

WASHINGTON — The economy appears slightly healthier than many had feared it was a few weeks ago, raising hopes that it can end the year on an upward slope.

The outlook for the final six months of the year has improved from August, when many thought the economy was at growing risk of falling back into a recession. Most economists now expect modest growth for the rest of this year. Still, they caution that it's unlikely to be strong enough to significantly lower the unemployment rate, which has been stuck near 9 percent for more than two years. And a recession in Europe, which many now predict, could slow growth in 2012.

Employers have added an average of only 72,000 jobs per month in the past five months. That's far below the 100,000 per month needed to keep up with population growth. And it's down from an average of 180,000 in the first four months of this year.

"A recession now looks a lot less likely, but economic growth is still going to be pretty weak," said Paul Ashworth, an economist at Capital Economics.

Reports Thursday were mostly positive:

• The average number of people applying for unemployment benefits each week over the past four weeks fell to 403,000, the Labor Department said. That's the lowest level for the four-week average since mid April. A month ago, it was 422,250.

• The Conference Board index of leading economic indicators rose 0.2 percent in September. It was the fifth consecutive gain for the index, although it was slightly weaker than increases in August and July.

Economists have been closely watching unemployment benefit applications since fears of another recession intensified over the summer. Layoffs and applications tend to rise at the start of recessions.

"This decline in initial claims signals the potential for an improvement in the pace of job creation in October relative to recent months," said John Ryding, an economist with RDQ Economics. "However, we are still waiting for that decisive move in claims below the 400,000 mark to send a stronger signal that payroll growth is running at a pace that will begin to make sustained inroads into unemployment."

Job growth is critical to a housing recovery, which many economists say could be years away. The number of Americans who bought previously occupied homes fell to a seasonally adjusted annual rate of 4.91 million homes, the National Association of Realtors said. The pace matches last year's sales figures, which were the worst since 1997.

Economists say home sales need to be closer to 6 million to be consistent with a healthy housing market. "This is a significant barrier to recovery," said Ian Shepherdson, chief U.S. economist for High Frequency Economics.

Home sales are tumbling, even though mortgage rates are at record lows. This week, the average rate on a 30-year mortgage ticked down to 4.11 percent. Just two weeks ago, it fell below 4 percent for the first time ever.

Economy may end year on an upswing, but economists doubt unemployment will decrease 10/20/11 [Last modified: Thursday, October 20, 2011 11:19pm]
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