Economic recovery loses steam in second quarter
By Jeannine Aversa Associated Press Writer
WASHINGTON (AP) – The economic recovery lost momentum in the second quarter, and in a fresh sign of weakness, new claims for jobless benefits last week climbed to their highest level in nearly two months.
After bolting out of the gate with a brisk 5 percent growth rate in the first quarter, the economy stumbled in the spring, growing at an annual rate of just 1.1 percent.
The Commerce Department’s latest reading Thursday on gross domestic product in the April-June quarter was unchanged from its initial estimate a month ago. GDP measures the total value of goods and services produced in the United States.
A second report raised new concerns about the lackluster job market.
For the third week in a row more Americans filed new claims for unemployment insurance. Claims rose by 8,000 last week to a seasonally adjusted 403,000, the Labor Department said. Economists were expecting claims to go down.
Last week’s increase pushed claims over the 400,000 mark, a level associated with a weak job market, to their highest point since July 6, when claims hit 407,000. That’s also the last time claims climbed over 400,000.
“It’s unnerving,” said economist Richard Yamarone of Argus Research Corp. “Right now the economy is in desperate need of a labor market revival, and these data don’t suggest that is in the cards.”
The number of unemployed people continuing to collect jobless benefits jumped by 90,000 to 3.6 million for the week ending Aug. 17, the most recent period for which the information is available. That suggests not a lot of hiring is going on, economists said.
The nation’s unemployment rate – now at 5.9 percent – could hit 6.3 or 6.5 percent by the fall, economists said.
Analysts believe the economy picked up a bit in the current quarter, with some estimates ranging from growth rates of around 2 percent to 3 percent. They said economic growth would have to be stronger for businesses to vigorously add to their payrolls and trigger a hiring wave.
For the second half of this year, some economists are predicting sluggish to moderate economic growth. The shape of the recovery ultimately will be determined by consumers and the willingness or reluctance of businesses to spend and invest in the months ahead.
The economy’s struggles pose a challenge for President Bush and will be a key topic for voters heading into the November elections.
The Federal Reserve, hoping to give a boost to the recovery, has held short-term interest rates steady all year long.
Businesses, concerned about accounting scandals and economic uncertainties, have been wary of making big commitments to hiring and capital investment, factors restraining the recovery.
The GDP report showed that after-tax profits of U.S. corporations increased at a rate of 1.7 percent in the second quarter, down slightly from a 2 percent growth rate in the first quarter.
Economist Joel Naroff called the profits picture decent, hoping businesses would become more inclined to invest. “That will require a change in corporate attitudes from the wait and see to the let’s get going,” he said.
So far, eroding consumer confidence, the roller-coaster stock market and a stagnant job market haven’t caused consumers to dramatically scale back spending. That’s because those potentially negative factors have been offset by positive ones, including low interest rates and a refinancing boom that has left people with extra cash.
Retail sales were solid in July, helped out by free-financing for cars, and home sales for the month were strong.
While more recent back-to-school sales have been sluggish, that should be offset by what economists expect will be robust auto sales for August. Consumers are the mainstay of the economy because their spending accounts for two-thirds of all economic activity.
“There’s a lot of pressure on consumers to keep the economy going,” said economist Clifford Waldman of Waldman Associates.
In the second quarter, consumer spending grew at a rate of 1.9 percent in the second quarter, down from a 3.1 percent growth rate in the first quarter.
Businesses in the second quarter cut spending on plants, office buildings and other structures at a rate of 17.7 percent, a deeper cut than initially estimated. But investment in equipment and software, after six straight quarters of decline, increased at a rate of 3.1 percent in the second quarter, stronger than previously estimated.
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On the Net:
GDP: http://www.commerce.gov/
Jobless: http://www.doleta.gov/