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Gas prices, jobs continue to stall economic recovery, reports suggest

WASHINGTON — A mixed slate of reports Thursday showed the economy is being held back by high gas prices and sluggish hiring.

Economists are forecasting a pickup in growth in the second half of the year, but the latest data reveal only faint signs of a turnaround.

The Commerce Department said retail sales ticked up only 0.1 percent last month, after declining the previous month. Consumers spent more on cars and in big chain stores in June, but less on furniture and appliances.

The number of people who applied for unemployment benefits dropped last week by 22,000 to a seasonally adjusted 405,000, the lowest level in three months. Still, applications have been above 400,000 for 14 straight weeks, reflecting the weak job market.

U.S. companies paid less for raw materials and factory goods in June, a separate report showed. The decline in wholesale prices was driven by the steepest fall in energy prices in nearly two years. Gas prices dropped by the most since May 2010, the Labor Department said.

Still, businesses and motorists are paying nearly a dollar more per gallon than they were a year ago. That has forced many consumers to forgo discretionary purchases. Growth in retail sales has slowed since February — around the same time that gas prices began to surge.

"Consumers are fatigued," said Chris Christopher, an economist at IHS Global Insight. "The only real good news on the consumer side of the economy is that gasoline prices started to fall, but are still relatively high."

JPMorgan economist Michael Feroli said the bank lowered its growth forecast for the July-September period based on the latest data on stockpiles. He said it expects only 2.5 percent growth, down from its initial estimate of 3 percent.

The economy would need to grow 5 percent for a whole year to bring down the unemployment rate by 1 percentage point. Economic growth of just 3 percent a year would hold the unemployment rate steady and keep up with population growth.

"Clearly, the recent stalling in employment growth has forced households to be a bit more careful with their cash," said Paul Dales, senior U.S. economist with Capital Economics. "For the moment, these data will do little to dispel fears that the economic recovery is going nowhere."

The decline in unemployment benefit applications is an encouraging sign that layoffs are dropping and the job market may be slowly improving. The four-week average, a less volatile measure, dropped to 423,250 last week. That's the lowest since late April.

Applications had fallen in February to 375,000, signaling healthy job growth. But they rose above 400,000 in early April and have yet to fall below that since.

The Producer Price Index, which measures price changes before they reach the consumer, declined 0.4 percent in June. Wholesale energy prices fell 2.8 percent, the biggest decline in nearly two years.

Food prices rose 0.6 percent in June, mostly because of higher fruit and melon costs.

Excluding the volatile food and energy categories, the so-called core index rose 0.3 percent, driven largely by a jump in prices for pickup trucks.

Gas prices, jobs continue to stall economic recovery, reports suggest 07/14/11 [Last modified: Thursday, July 14, 2011 9:58pm]
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