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Vicious circle tames jobs picture

WASHINGTON — Companies are more productive, fewer people are seeking unemployment benefits, and service companies are adding jobs.

Ideally, those trends could signal stronger growth, followed by more hiring. Yet until consumers consistently spend more, businesses are unlikely to hire enough workers to drive down unemployment.

But more consumers need jobs and raises to keep spending enough to help the economy grow. The paradox has kept the economy from thriving more than two years after the recession officially ended.

It's also why economists think the unemployment rate stayed at 9.1 percent for a fourth straight month in October. The government will issue the October jobs report today.

"We're creating jobs, but it's not enough to … increase wages measurably," said Ellen Zentner, an economist at Nomura Securities.

Thursday's data reinforced that message. Weekly applications for unemployment benefits dropped to a seasonally adjusted 397,000, the Labor Department said. It's only the third time since April that applications have fallen below 400,000.

Still, applications would need to fall below 375,000 to signal sustained job gains. They haven't been at that level since February.

Services companies, which employ about 90 percent of the workforce, hired more in October after cutting jobs in the previous month, according to a survey by the Institute for Supply Management.

Overall growth for the service sector — which covers businesses from restaurants and hotels to financial services firms and retail companies — was mostly unchanged from September's slow pace.

Companies ordered more factory goods in September for a third straight month, the Commerce Department said. The gain occurred largely because businesses spent more on industrial machinery, computers and software. It's a sign that in the sluggish economy, many companies are investing in equipment but not in new hires.

Businesses are getting more out their existing workforces while paying less to employ them. Worker productivity rose in the July-September quarter by the most in 18 months, the Labor Department said. At the same time, labor costs fell.

Higher productivity is generally a good thing. It can enable companies to pay workers more without raising prices and increasing inflation. But without strong and sustained customer demand, companies are unlikely to hire.

The Federal Reserve now says the economy will likely expand no more than 1.7 percent for all of 2011. That's down from its June forecast of 2.7 to 2.9 percent.

And it predicted growth of only 2.5 to 2.9 percent next year, nearly a percentage point lower than its June estimate.

The Fed said it doesn't expect the unemployment rate to be any lower this year. And it sees unemployment averaging 8.6 percent by the end of next year.

Retail sales lag estimates

Americans were shopping in October, but they were spending at a slower clip than expected as they faced a barrage of bad economic news. October revenue at stores open at least a year — an indicator of a retailer's health — rose 3.7 percent, according to the International Council of Shopping Centers' tally of 25 retailers. But 13 of 19 retailers missed Wall Street estimates for October revenue, according to Thomson Reuters. That included big merchants like Macy's, Saks and Target.

Vicious circle tames jobs picture 11/03/11 [Last modified: Thursday, November 3, 2011 11:57pm]

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