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Unemployment could stay high as U.S. economy slows

By Martin Crutsinger

Associated Press

Published: Friday, July 27 2012 9:11 p.m. MDT

FILE - In this Tuesday, May 1, 2012, file photo, worker Maria Contrero, of Boston, removes an elite running shoe from a sole press during the assembly process at the New Balance Athletic Shoe, Inc. factory in Boston. A U.S. economy that plodded along in the first three months of the year likely grew even less in the April-June quarter. And most economists no longer think growth will strengthen much in the second half of 2012. (AP Photo/Steven Senne, File)

Associated Press

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WASHINGTON — High unemployment isn't going away — not as long as the economy grows as slowly as it did in the April-June quarter.

Weak consumer spending held growth to an annual rate of just 1.5 percent, even less than the 2 percent rate in the first quarter. And few expect the economy to accelerate in the second half of the year as Europe's financial woes and a U.S. budget crisis restrain businesses and consumers.

The growth estimate Friday from the government suggested that the U.S. economy could be at risk of stalling three years after the recession ended. Economists generally say even 2 percent annual growth would add only about 90,000 jobs a month. That's too few to keep up with population growth and drive down the unemployment rate, which is stuck at 8.2 percent.

The figures came in the Commerce Department's quarterly report on gross domestic product. GDP measures the country's total output of goods and services, from the purchase of a cup of coffee to the sale of fighter jets.

"The main takeaway from today's report, the specifics aside, is that the U.S. economy is barely growing," said Dan Greenhaus, chief economic strategist at BTIG LLC. "It's no wonder the unemployment rate cannot move lower."

Sal Guatieri, senior economist at BMO Capital Markets, expects the unemployment rate to end this year — and next year — at 8.3 percent. He said he foresees no decline in unemployment because of how tepid he thinks economic growth will remain: 2.2 percent for all of 2012 and 2 percent for 2013.

Stocks rose as investors shrugged off the sluggish U.S. growth and focused instead on pledges from European leaders to preserve the union of the 17 countries that use the euro. The Dow Jones industrial average closed up more than 187 points. Broader indexes also jumped.

The lackluster economy is raising pressure on President Barack Obama in his re-election fight with Mitt Romney, the presumptive Republican presidential nominee. But few think the Fed, the White House or Congress can or will do anything soon that might rejuvenate the economy quickly. Many lawmakers, for example, refuse to increase federal spending in light of historically large budget deficits.

No president since Franklin D. Roosevelt, in the depths of the Great Depression, has been re-elected when the unemployment rate exceeded 8 percent. Presidents Jimmy Carter and George H.W. Bush were ousted when unemployment was well below 8 percent.

Polls show that management of the economy is the only issue on which those surveyed express more confidence in Romney, with his business background, than Obama.

Glenn Hubbard, economic adviser for Romney, said Friday's report largely matched economists' expectations.

"But those expectations themselves and the report itself were actually quite disappointing," Hubbard said. "At that pattern, the economy simply will never return to full employment."

Alan Krueger, chairman of the White House Council of Economic Advisers, noted that the report showed the economy grew for the 12th straight quarter. Still, Congress could strengthen growth and job creation by adopting Obama's plan to extend expiring tax cuts for all except the wealthiest Americans, Krueger said.

Republicans want the tax cuts extended for all Americans.

The 1.5 percent growth rate in the second quarter was the weakest since GDP grew at a 1.3 percent rate in the July-September quarter last year. And it shows the recovery is gaining no momentum.

Great Recession a bit less horrendous

WASHINGTON — Here's a small consolation: The Great Recession wasn't quite as horrendous as previously thought.

But it was still pretty horrendous: Updated government estimates from January 2009 through December 2011 show that the downturn remains by far the worst recession since the Great Depression.

And growth since the recession officially ended in June 2009 has been slightly less than previous estimates.

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