Sunday, August 3, 2008

Mounting job losses point to more economic troubles

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By Kevin G. Hall

Employers shed jobs in July for the seventh consecutive month and the national unemployment rate rose to 5.7 percent, the Labor Department reported Friday. The losses weren't of the size that signals recession, but analysts think that continued sluggish economic growth lies ahead.

The nation's employers trimmed 51,000 jobs from nonfarm payrolls during the month of July and more than 463,000 jobs cumulatively this year, according to the Bureau of Labor Statistics. The jobless rate bumped up two-tenths of a percentage point during the month, from 5.5 percent, leaving more Americans without jobs.

"Though the decline wasn't huge, it was very broadly based, with only health-care and mining showing anything that could be described as strength. Hours worked per week declined, which is a bad sign for future hiring," Nigel Gault, chief U.S. economist for forecaster Global Insight, observed in a note to investors.

As of the latest reading by the Labor Department, 8.8 million Americans were unemployed, a number that's grown by 1.6 million over the past 12 months, and the unemployment rate has risen a full percentage point over that period.

A deeper dig into Friday's numbers paints an even more troubling view of the national employment picture. The number of people working part time for economic reasons rose by 308,000 to 5.7 million. It's risen by 1.4 million over the past 12 months. This measure includes people who said they'd like to work full time but that their hours had been cut back or they were unable to find full-time jobs.

Also, the number of marginally attached workers — those who want to work but aren't counted as unemployed because they didn't look for work in the prior four weeks — has risen by 1.6 million over the past 12 months.

Many economists expect a protracted period of sluggish economic growth below the potential of the U.S. economy, but not recession.

"If we look at the job losses we had during the time people are calling a mild recession — which was 2001 — we were losing about 180,000 jobs a month at that time. So clearly this is a different degree," Commerce Secretary Carlos Gutierrez said in an interview with McClatchy. He added, "We don't like to see job losses. Obviously 51,000 is disappointing."

The stimulus package passed by Congress and signed by President Bush earlier this year, which included tax rebates for more than 100 million Americans, has pushed the economy forward despite strong headwinds, Gutierrez said. The Commerce Department reported Thursday that the U.S. economy grew 1.9 percent from April through June, double the rate of the previous three months.

The commerce chief said the stimulus package bought time for the economy, but some economists think that it simply delayed a further weakening rooted in the housing crisis and the banks' credit crunch.

"What we're seeing is a mild recession interrupted here by a rebate program," said David Wyss, chief economist for the rating agency Standard & Poor's in New York. "Once they (consumers) finish spending these checks, we'll head down again."

Thursday's growth data suggested that business spending is likely to pick up later this year, and Wyss thinks that might help make growth during the July through September period stronger than in the second quarter.

But by the fourth quarter, he thinks, growth could turn negative, as it did in the last three months of 2007.

Congress already is debating a second stimulus plan. House Financial Services Committee Chairman Rep. Barney Frank, D-Mass., issued a statement Friday calling for one, noting sarcastically that it's "a sign of how troubled our economy is that some analysts are greeting the seventh straight month of job losses and an increase in the unemployment rate to 5.7 percent as relatively good news."

Federal and state spending can help spark growth, he said.

"This stimulus should include increases in the federal share of Medicaid, significantly increase funding for home energy assistance and food stamps, and other measures which will provide badly needed stimulus for our economy and help state and local governments and individuals improve the quality of their lives," Frank said. He also called for aid to state and local governments to improve infrastructure, such as bridges.

The Bush administration hasn't signed on to any call for a second stimulus plan, saying that the effects of the first one are still playing out.

The wild card in all economic forecasts is oil prices. Their rise slowed the U.S. and global economies and sparked inflation. Their recent partial retreat has eased pressure on the Federal Reserve and foreign central banks to raise interest rates to curb inflation. The Fed is widely expected to stand pat when it meets Tuesday to weigh rates.

"The Fed is stuck on hold, trapped between a weak economy on one side and high headline inflation on the other," said Gault, of Global Insight.

If oil prices slide back to the $100 a barrel range, it would certainly ease inflation pressures and probably would boost consumer confidence. That's no small matter, because consumption drives about 70 percent of U.S. economic activity.

"What could rescue us is oil prices getting back down under $100," said Wyss, who thought that unlikely but not impossible.

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