Weak job market could hamper economic recovery

UNITED STATED. The job market is thawing at a snail's pace, raising doubts about whether consumer spending will become vigorous enough to sustain an economic recovery anytime soon.

An index of economic indicators and a regional manufacturing report released Thursday raised some optimism. But an unexpected rise in first-time claims for unemployment aid signaled that jobless Americans are still having a hard time finding work

Americans may see little benefit from a recovery if jobs remain scarce and consumer spending stays too low to fuel a strong economic rebound.

"Consumer spending is going to have a very difficult time recovering with the labor market as weak as it is," said Joshua Shapiro, chief U.S. economist at MFR Inc.

Many analysts expect the economy to grow between 2 and 3 percent in the second half of this year, as businesses restock their shrunken stocks of goods. But spending is likely to remain subdued. And as a result, many of the same economists expect growth to slow in 2010.

Even when the downturn ends, "it's still going to feel like a recession to the average consumer, the average business," said Ken Goldstein, economist for the Conference Board, a private business research group.

Consumers have been hammered by job losses, declining wages and lost wealth. Home prices in many areas of the country have sunk in the past two years. Investments and savings have dwindled, too.

Some retailers that reported second-quarter earnings earlier this week managed to boost their bottom lines by slashing inventory and other costs. But their executives cautioned that shoppers likely will remain tightfisted.

Discounter TJX Cos., which operates T.J. Maxx, Marshalls and HomeGoods stores that appeal to shoppers seeking cheaper clothing and other products, reported an earnings jump of 31 percent. Profits at Target Corp. and Home Depot Inc. fell, but beat Wall Street expectations.

"We're not expecting a big resurgence in consumer spending next year," said Michelle Meyer, an economist at Barclays Capital.

The Conference Board said its index of leading economic indicators rose for a fourth straight month in July, gaining 0.6 percent. That was slightly less than economists expected, and it was a slower rate than in the prior three months.

Still, the index, intended to forecast economic activity over the next three to six months, suggests the recession has bottomed and the economy will soon start growing again. Six of the 10 indicators that make up the index rose in July. Consumer expectations were the biggest negative factor.

"Looks like the recession ended in June," Tim Quinlan, economic analyst for Wells Fargo Securities, wrote in a research note.

The National Bureau of Economic Research, which officially declares the start and end of economic cycles, has in the past set an end-date to recessions after two to three straight months of gains in the leading indicators, Quinlan said.

A survey of manufacturers in the mid-Atlantic region on Thursday showed that factory activity rose in August for the first time in nearly a year. The report by the Federal Reserve Bank in Philadelphia followed a similar survey reported Monday by the New York Fed that also found an increase in manufacturing activity after months of negative results.

The rise in both surveys indicates manufacturing is growing even in areas without significant auto-related production, economists said. The auto industry has enjoyed a big boost from the government's Cash for Clunkers programs, which provides up to $4,500 for consumers who trade in old cars.

The two regional reports show the "production gain is not just in autos; it's more widespread, and that's good news," said John Canally, an economist at LPL Financial.

The report on jobless claims was a disappointment, though. The number of first-time claims for unemployment aid rose unexpectedly for the second straight week. That showed that jobs remain scarce even as other figures indicate the economy is stabilizing.

The Labor Department said the number of new jobless claims rose to a seasonally adjusted 576,000 last week, from a revised figure of 561,000. Wall Street economists had expected a drop to 550,000.

Economists closely watch the initial jobless claims. They're considered a gauge of layoffs and an indication of companies' willingness to hire new workers.

The figures had been trending down, after remaining above 600,000 for most of this year. In a healthy economy, initial jobless claims tend to hover around 325,000 or below.

The four-week average of initial claims, which smooths out fluctuations, rose for the second straight week to 570,000.

The stock market posted gains amid the mixed signals on the economy. The Dow Jones industrial average rose about 71 points, or 0.76 percent, and broader stock averages also increased.

The Mortgage Bankers Association, meanwhile, said more than 13 percent of American homeowners with a mortgage are either behind on their loan payments or in foreclosure — a record tally as the recession leaves more people unemployed. About a third of new foreclosures between April and June were prime fixed-rate loans, up from one in five a year earlier.

The government report on jobless claims said the number of people continuing to receive aid dropped by 2,000 to 6.24 million. The continuing claims figures lag behind those for first-time claims by a week.

When federal emergency programs are included, the total number of jobless benefit recipients was 9.18 million in the week that ended Aug. 1, the most recent period for which figures are available. That was down from 9.25 million in the previous week. Congress has added up to 53 extra weeks of benefits on top of the 26 typically provided by the states.

Still, layoffs have slowed recently. The government said earlier this month that companies cut 247,000 jobs in July, a large amount but still the smallest number in almost a year.

The unemployment rate dipped to 9.4 percent in July from 9.5 percent, its first drop in 15 months. But many private economists and the Federal Reserve think the rates could top 10 percent by next year.
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AP Business Writers Alan Zibel in Washington and Tali Arbel in New York contributed to this report.
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