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Sluggish GDP growth a bad sign for jobless rate

WASHINGTON — High unemployment isn't going away — not as long as the economy grows as slowly as it did in the April-June quarter.

Weak consumer spending held growth to an annual rate of just 1.5 percent, even less than the 2 percent rate in the first quarter. And few expect the economy to accelerate in the second half of the year as Europe's financial problems and domestic troubles restrain businesses and consumers.

The growth estimate Friday from the Commerce Department suggested that the U.S. economy could be at risk of stalling three years after the recession ended. Economists generally say even 2 percent annual growth would add only about 90,000 jobs a month. That's too few to drive down the unemployment rate, which is stuck at 8.2 percent.

"The main takeaway from today's report, the specifics aside, is that the U.S. economy is barely growing," said Dan Greenhaus, chief economic strategist at BTIG. "It's no wonder the unemployment rate cannot move lower."

Sal Guatieri, senior economist at BMO Capital Markets, expects the unemployment rate to end this year — and next year — at 8.3 percent. He said he foresees no decline in unemployment because of how tepid he thinks economic growth will remain: 2.2 percent for all of 2012 and 2 percent for 2013.

The lackluster economy is raising pressure on President Barack Obama in his re-election fight with Mitt Romney, the presumptive Republican presidential nominee. But few think the Federal Reserve, the White House or Congress can or will do anything soon that might rejuvenate the economy quickly. Many lawmakers, for example, refuse to increase federal spending in light of historically large budget deficits.

No president since Franklin D. Roosevelt, in the depths of the Great Depression, has been re-elected when the unemployment rate exceeded 8 percent. Presidents Jimmy Carter and George H.W. Bush were ousted when unemployment was well below 8 percent.

The sluggish growth rate could make the Fed more likely to announce some new step after it meets next week. But Paul Dales, senior U.S. economist at Capital Economics, doubts the Fed will act at the meeting Tuesday and Wednesday.

Many economists think the Fed will launch another round of bond buying at its September policy meeting instead. The aim would be to drive long-term interest rates lower and encourage more borrowing and spending.

Americans bought fewer autos, computers and other long-lasting manufactured goods in the April-June quarter, but money spent on services rose.

As consumers spent less, they saved more. The savings rate reached 4 percent, up from 3.6 percent in the first quarter.

Nigel Gault, chief U.S. economist at IHS Global Insight, said consumer spending will likely remain subdued in the second half of the year.

He thinks it will grow at or below a 2 percent annual rate.

More economic news

• The White House predicts this year's federal budget deficit will end up at $1.2 trillion, marking the fourth consecutive year of $1 trillion-plus deficits during President Barack Obama's administration. The 2012 budget year ends on Sept. 30. The White House also predicted that next year's deficit will fall just short of $1 trillion, higher than it predicted in its February budget release.

• Consumer confidence is at the lowest level of the year, according to a new index compiled by Thomson Reuters and the University of Michigan. The monthly gauge in sentiment slipped 1.2 percent to 72.3 in July from 73.2 the previous month. Nearly half of consumers said their financial situation had worsened, blaming lower incomes and higher prices, largely for food. Only 10 percent said they expected pay raises next year to reflect inflation growth. Half said they don't expect the 8.2 percent jobless rate to change in the next 12 months. Compared with a year ago, however, consumer confidence is up 13.5 percent.

Sluggish GDP growth a bad sign for jobless rate 07/27/12 [Last modified: Friday, July 27, 2012 9:24pm]
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