Slowing economic rebound raises unemployment fears
Recovery slows in second quarter to weakest pace in nearly a year as consumers turn cautious
In this photograph taken July 22, 2010, employees sort garlic cloves at the Christopher Ranch, in Gilroy, Calif. The recovery lost momentum in the second quarter as growth slowed to a 2.4 percent pace, its most sluggish showing in nearly a year and too weak to drive down unemployment. (AP Photo/Paul Sakuma)
WASHINGTON (AP) -- The recovery is losing so much momentum that employers are unlikely to step up hiring anytime this year, and unemployment could return to double digits.
That was the bleak conclusion of analysts Friday after the government said economic growth crawled at a 2.4 percent pace in the spring. It was the economy's weakest showing in nearly a year. And many economists think growth is even slower now.
Consumers spent less, companies slowed their restocking of shelves and the nation's trade deficit exerted a stronger drag on the economy in the April-to-June quarter.
The Commerce Department report also showed the recession was deeper than previously estimated, according to revisions of the data. Its depth helps explain why the economy is now struggling so much, with shoppers reluctant to spend and employers slow to hire.
"We're headed into the third quarter with little momentum, and most everything is tracking weaker," said Mark Zandi, chief economist at Moody's Analytics. "Because of that, I expect unemployment to rise back to double digits, hitting 10 percent in December and staying there early next year."
Businesses stepped up their spending last quarter, propelled in part by government stimulus. But those gains aren't likely to be repeated, economists said.
The one exception is in equipment and software. Companies invested in those areas last quarter at the fastest pace in 13 years. And they are expected to keep up that spending. But that won't be enough to invigorate the rebound.
In fact, their investments in technology could actually crimp hiring. Companies are investing in productivity-enhancing equipment that reduces the need to expand their work forces. Instead, they can produce more from their existing employees.
Congress may feel pressure to pass more stimulus measures to speed the recovery. So far, Republicans and some Democrats have blocked additional spending because of their concerns about the size of the deficit.
The Federal Reserve is exploring new steps to bolster the recovery in case the economy flashes dangers signs of sliding back into recession.
Investors reacted to the report with disappointment. Stock futures fell in the hour before the markets opened. But losses moderated after the University of Michigan/Reuters consumer sentiment index for July rose slightly more than expected.
The report also showed that the economy grew at a 3.7 percent pace in the first three months of this year. That was much better than the 2.7 percent pace estimated just a month ago.
Still, the recovery has been losing air for two straight quarters. Concerns have arisen about whether it will fizzle out -- or even tip back into a "double-dip" recession.
The economy began to grow in the third quarter of last year after having suffered the worst recession since the Great Depression. And in the final quarter of 2009, the economy surged at a 5 percent pace. That was the high-water mark of the rebound so far.
Much of the expansion was powered by the government's $862 billion stimulus package of tax cuts and spending. Also, companies helped energize growth with a burst of spending to replenish inventories that had been cut down during the recession.
Now, those forces are fading. As they do, doubts are growing about whether the private sector can boost spending and investment enough to fuel the recovery.
Consumer spending, usually the lifeblood of the economy, slowed in the second quarter. Such spending rose at an anemic 1.6 percent pace. That was down from a 1.9 percent pace in the first quarter. It also was the weakest showing since the end of last year.
Instead, Americans saved more. They saved 6.2 percent of their disposable income in the second quarter, the highest share in a year.
"The U.S. recovery remains patchy and heavily reliant on government support and inventory rebuilding," said Sal Guatieri, economist at BMO Capital Markets Economics. "Optimism would improve if companies shifted spending towards hiring, from machines."
For the first time in two years, builders boosted spending on commercial projects last quarter. And home builders spent the most in 27 years. Many expect that to fade now that federal homebuying tax credits have expired. Economists think spending in both those sectors turned negative in the current quarter.
Stripping out business investments in inventories and sales of exports, so-called "final sales to domestic purchasers" rose at a 4.1 percent pace in the second quarter, the most in four years. That looks good on the surface. But that spending was juiced by the government's homebuyer tax credit and other government aid, economists said.
They predict this figure-- a barometer of domestic demand -- will shrink in the coming quarters, reflecting tightfisted consumers, spending cuts on building projects and less robust federal spending.
The federal government boosted spending at a 9.2 percent pace, the most in a year. Economists predict that growth will slow. State and local governments, coping with budget shortfalls, surprisingly increased their spending for the first time in a year. Economists think more spending cuts are coming at the state and local level.
In the revisions issued Friday, the government estimated the economy shrank 2.6 percent last year -- the steepest drop since 1946. That's worse than the 2.4 percent decline originally estimated.
It takes about 3 percent growth in gross domestic product just to create enough jobs to keep pace with the population increase. Growth would have to equal 5 percent for a full year to drive the unemployment rate down by 1 percentage point.
Gross domestic product measures the value of all goods and services produced within the United States. It is the best gauge of the nation's economic health.
The government takes three cracks at estimating growth for a given quarter. The estimate Friday was the government's first one for the April-to-June quarter. Missing from this initial estimate are the final results on trade and inventory investment activity, so the government makes estimates based on preliminary materials.
357 Comments
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0 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 0 users disliked this commentmissd Wed Aug 04, 2010 07:49 pm PDT Report Abuse - 0 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 0 users disliked this commentAGR Report Abuse
This recession was exacerbated due to Obama's policies of welfare and expenditure that was not primarily directed towards business development.
Otherwise Growth and recession are periodic business and economic cycles. Just like stocks cannot keep on rising for ever and take a breather, economy cannot just keep on rising.
Other than that there are special situations and circumstances that contribute to econ cycle in both directions. This time the fin crisis was a result of 32 years of CRA policy started in 1977.
Bush did not create this mess. Bush inherited a recessing economy started in 2000 and did very well. Obama inherited a downward economy and politicized it to make it look like Bush was a demon.
This time it is squarely Obama to blame. He is more interested in show off and photo ops and getting votes by welfare agenda rather than do the right thing. Why do we still have budget deficit? Why is it that our border is not sealed and have our jobs taken by illegals to the tune or 3-5 million jobs. Why is it more important to sue Arizona and to have monkey circus of jobs summit. Why is there a need for cheat and deceive tactics of 3.2 million jobs saved or created.
This is total incompetency and Obama is trying to project what he is not. An effective leader with experience. - 0 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 0 users disliked this commentBonnie Report Abuse
The unemployment rate is already double digits because they are not counting the people who have exhausted their benefits and are still unemployed.
- 1 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 0 users disliked this commentRG Report Abuse
I moved to China in March for a job after searching in the US for 6 months. Since I've been here I have had to turn down 4 other job offers.
They can't find enough people to fill the jobs over here, employers actually have to compete for workers.. - 3 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 1 users disliked this commentdago Report Abuse
SUMMER OF RECOVERY?????????
2007 dems. took over congress then the world started falling apart - 2 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 0 users disliked this commentTomTom Report Abuse
If we want economic freedom, a Government that answers to us the people not big money, if we want the illegals to go home then we must repeal the 16th and 17th!
- 3 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 0 users disliked this commentTomTom Report Abuse
As contemplated by the Founders, direct taxes were required to be levied according to the rule of apportionment while indirect taxes were required to be levied according to the rule of uniformity. Thus, anytime Congress attempted to impose a direct tax; it was required to apportion the tax among the States according to the rule of apportionment.
With the repeal of the 17th US Senators would then be selected and have to answer to each state legislators. To which every state would share equal power over the Federal Government! Thous makes your local State Legislator responsible for every bill passed to the President for His signature. - 2 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 3 users disliked this commentIanMac37 Report Abuse
We will not recover this economy until we overturn the Republican destruction of the middle class. Since 1982 the Republican tax cuts and fiscal policies have shifted income share from the poor and middle class to the very rich. Only those in the top 20 percent of income made any gains at all. Have trouble believing that? Just google the GINI coefficient and see how we have lost all the gains that the middle class made from 1940 through the 1970s. The rich are doing very well but the rest of us are getting more local taxes, fees, and charges as federal money to the states dries up. In Florida the cost to put license plates on one car has risen from $26.00 10 years ago, to $46 last year, to $71 this year. Florida is dominated by Republican state legislators.
- 1 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 0 users disliked this commentEric Report Abuse
To Robert Stone.Carpenters,plumbers and laborers are good jobs that pay usually better than a professional career.If your in a union job you usually get a fair contract that includes health insurance and dental at a lower deductible compared to a non-union job.you usually get a pension which is better than a 401k.If your a crane operator you get 35 to 40 an hour and work 9 months out of the year.You can't beat that.So some of these blue collar jobs are actually better than white collar jobs.
- 0 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 0 users disliked this commentRobert Stone Report Abuse
Americans that are not working only have to go after the jobs that the illegals are
doing at lower wages. Then ban together in such a way to prevent the illegals
from getting the low paying jobs.
Learn to live as the legal immigrants did in the 1920s through the 1930s. Those
immigrants were poor hard working people and happy with their life in America.
Those immigrants and their children won world war II.
We the children of Immigrants are Americans who do not appreciate the wonderful land that we live in because
we do not know the reality of what it is like to live in the poverty of poorer countries.
And that is the weakness of America we have too much and do not know it and all we want is more.
We want our children to be college educated and have professional careers, because being a carpenter or a plumber or a laborer or a dish washer is just not acceptable. Trade schools have disappeared once the backbone for our youth to get jobs or start their own business. We have stopped the young from enjoying the experience of working and earning their weekly allowances. We introduced laws to stop Child labor, labor that filled the many service jobs during WWII and made adults of the young.
Super markets stopped the need for delivery boys, automatic pinning machines in bowling alleys stopped the need for Pin boys to reset pins, (such jobs were held by 13 year olds through 16 and 17 year olds. All thatis gone, has that improved the quality of our youth who are now more interested in sports??
However, sending our young to wars and in harms way that will destroy them for life, thats OK.
WE Send our intelligent young people to Universities and when they come out, not knowing the realities of Life become Bankers, Traders, Lawyers Politicians and lets not forget the Capitalist whose life work is to achieve the appropriate bottom line no matter how they destroy our society, (we the workers of this country) etc. and there goes our Society down the tube.
We are a society that needs change and the Democrats or the Republicans are not the answer.
I haven't the answer, I have only a few years left in this world, hopefully there are others out there who
have the ability to make the change, people who really understand the true meaning of life.
When I was young my elders (people born in the late 1800s and early 1900s) told me that life was just Life,
and that the purpose of Life is to create Life, in that Life Process do on to others as you would want others do unto you.
Sounds simple but obviously it is not, , obviously we humans do not know how to make it happen and the Power of Creation obviously has no intention to ever make it happen. And so be it.
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