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Economy gaining but not enough to cut unemployment
Many economists expect similarly tepid growth in 2012 and 2013. The economy would need to grow consistently at 4 percent to 5 percent to generate enough hiring to lower unemployment significantly.
“Growth remains sluggish and insufficient to reduce the unemployment rate,” Ryan Sweet, an economist at Moody’s Analytics, said in a note to clients.
The unemployment rate was stuck at 9.1 percent in August for the second straight month. Employers didn’t add any jobs in August — the weakest showing in nearly a year.
Economists expect little if any improvement in hiring for September. Sweet thinks employers will have added 50,000 jobs this month. More than twice as many jobs would be needed just to keep up with population growth.
Others are gloomier. Capital Economics predicts that the economy in September will have failed for a second straight month to create any jobs. The main problem, the firm says, is that businesses don’t think their customer demand justifies additional workers.
Though growth has probably strengthened a bit in the July-September quarter, the economy suffered shocks that will restrain growth in the final quarter of this year, economists say.
In early August, for example, Congress fought to the final hours before raising the nation’s borrowing limit. That delay, in part, led to a downgrade of long-term U.S. debt by Standard & Poor’s. Stocks tumbled in response.
In addition, consumer confidence plunged last month to its lowest level since April 2009, when the economy was officially in recession.
And retail sales were flat in August, a sign that the turmoil caused consumers to pull back.
Businesses and investors are also worried that Europe won’t be able to prevent Greece from defaulting and worsening the region’s debt crisis. If Greece defaults, it could destabilize other indebted countries, such as Portugal, Ireland and Italy. It could also harm many of Europe’s banks, which own Greek debt.
And if European banks hoard cash to make up for their losses and stop lending to their U.S. counterparts, that could restrict credit in the United States and slow the economy. A financial crisis in Europe would also reduce U.S. companies’ exports and sales to the region.
Last week, applications for unemployment benefits dropped 37,000 to a seasonally adjusted 391,000. That was the fewest since April 2.
Some of the improvement was due to technical factors related to the seasonal adjustment of the data, a Labor Department spokesman said. The spokesman also said some states had reported higher applications in previous weeks due to Hurricane Irene.
As a result, the drop in applications for benefits “may not be as encouraging as it looks,” said Paul Dales of Capital Economics. “Further falls will be needed before we can conclude a downward trend is underway.”
• AP business writer Derek Kravitz contributed to this report.
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