Economy’s spring slump could last through summer
Posted: 4:22 pm Thu, July 21, 2011
WASHINGTON — The economy’s spring slump appears to be extending into the summer, according to a slew of mixed data released Thursday.
Layoffs are rising. Manufacturing activity in the Northeast expanded only slightly in July after contracting in June. Economic growth is projected to pick up this fall, but not enough to give businesses confidence to hire and speed the recovery.
The economy could lapse even further if Congress and the Obama administration fail to reach agreement on raising the nation’s borrowing limit in the coming week.
For the moment, traders on Wall Street don’t seem worried. Stocks soared Thursday on news that European governments were moving toward agreement on an aid package for Greece. The Dow Jones industrial average rose more than 150 points in afternoon trading.
Economists are less optimistic. They are forecasting a third straight month of feeble hiring in July, based on the latest round of data. Expectations are the economy added somewhere in the range of 50,000 to 100,000 net new jobs this month.
That’s not enough to keep up with population growth and far below what is needed to lower the unemployment rate, which was 9.2 percent last month.
“We’re going to see improvement, but right now nothing’s improved yet,” said Joshua Dennerlein, an economist at Bank of America Merrill Lynch.
Applications for unemployment benefits rose last week by to a seasonally adjusted 418,000, the Labor Department said. They have now topped 400,000 for 15 straight weeks. Applications had fallen in February to 375,000, a level that signals healthy job growth.
The Philadelphia Federal Reserve Bank said its manufacturing index rose to 3.2 in July, a sign that the sector is growing again. It had contracted in June for the first time in nine months when the index dropped to negative 7.7, the lowest level in two years. Any figure below zero indicates contraction.
The index had topped 40 in March. The lower reading illustrates the impact of a parts shortage caused by the Japanese earthquake, which has affected many U.S. automakers and electronics producers. Still, manufacturers expressed some hope in the latest survey, saying they expect orders and shipments to pick up significantly six months from now.
The Conference Board also projected modest growth for the broader economy in the coming months based on its latest reading of its leading economic indicators. The index rose in June for the second straight month. It had declined in April, the first time that had happened in nearly a year.
The private research group offered a caveat: U.S. lawmakers must agree to raise the government’s borrowing limit and avoid a catastrophic default on the debt.
The federal government has reached its borrowing limit of $14.3 trillion, and the Obama administration says the government won’t be able to pay all its bills if the cap isn’t raised by Aug. 2.
Congressional Republicans have demanded steep spending cuts in return for raising the limit. The White House wants to raise some taxes as well, which House Republicans adamantly oppose. The impasse has lasted for weeks.
“The sooner legislators can come to some agreement the better,” Ellen Zentner, an economist at Nomura Securities, said in a research note. “The economic uncertainty caused by the quickly approaching Aug. 2 deadline has already damaged the recovery.”
The economy expanded only 1.9 percent in the January-March quarter. Analysts forecast even weaker growth for the April-June period. The government gives its first reading for second-quarter growth next Friday.
Federal Reserve Chairman Ben Bernanke and other economist have largely attributed the slumping economy to temporary factors.
High gas prices caused consumers to pull back on spending. Supply disruptions caused by the Japan crisis have slowed manufacturing production, which until this spring was among the strongest performers since the recession ended two years ago.
But Bernanke has acknowledged that some troubles, such as depressed housing markets and tight credit, are more long-lasting.
Home sales in June fell for the third straight month and are lagging behind last year’s sales, which were the fewest in 13 years. Declining home prices have made consumers feel less wealthy and forced some to cut back on discretionary purchases. Sales of appliances, electronics, furniture and sporting goods have dropped for three straight months.
Employers have responded by reining in hiring. They added only 18,000 net jobs in June, the second straight month of dismal job gains. That’s far below the average of 215,000 net jobs per month the economy averaged from February through April.
Some companies are cutting their work forces. Layoffs rose to their highest level in nine months in May, according to a separate Labor Department report last week.
Cisco Systems Inc., the world’s largest maker of computer-networking gear, said Monday that it is eliminating 6,500 positions, or about 9 percent of its worldwide work force of 73,000.
The mixed data have led some to deduce that the job market hasn’t improved much this month.
Economists at Deutsche Bank cut their forecast for net job gains in July to 50,000, from an earlier estimate of 100,000. Dennerlein, meanwhile, expects a gain of only 75,000 jobs.
The economy needs to generate about 125,000 jobs per month to keep up with population growth and prevent the unemployment rate from rising, and at least twice that many to rapidly reduce unemployment.
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