Unemployment could stay high as U.S. economy slows
WASHINGTON (AP) - 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.
After shrinking 3.1 percent in 2009 in the midst of the recession, the economy grew 2.4 percent in 2010. Last year, growth slowed to 1.8 percent - roughly the same meager pace at which the economy expanded in the first half of this year.
Even in normal times, such growth rates are subpar. They're especially weak for a recovery that follows a deep recession, when growth is typically much stronger than average.
Annual economic growth of 2.5 percent to 3 percent is needed to create enough jobs just to keep up with an expanding workforce. Healthier growth of 4 percent or more is needed to reduce the unemployment rate significantly.
The government makes three estimates of GDP for each quarter. Each revision is based on more complete economic data.
The sluggish growth rate could make the Federal Reserve more likely to announce some new step after it meets next week. But Paul Dales, senior U.S. economist at Capital Economics, doubts the Fed will act at the July 31-Aug. 1 meeting.
Many economists instead think the Fed will launch another round of bond buying at its September policy meeting. The aim would be to drive long-term interest rates lower and encourage more borrowing and spending.
In the second quarter, GDP in current dollars rose at an annual rate of $117.6 billion to $15.6 trillion.
Growth was weaker mostly because consumer spending slowed to a growth rate of just 1.5 percent. That was down from 2.4 percent in the first quarter.
Americans bought fewer autos, computers and other long-lasting manufactured goods. But money spent on services, which represents about two-thirds of spending, rose in the April-June quarter.
As they spent less, Americans also saved more. The savings rate reached 4 percent, up from 3.6 percent in the first quarter.
The savings rate reached a low of 1.5 percent in 2005, a year when soaring home prices made consumers feel less need to save. The rate climbed to 5.4 percent in 2008 as the financial crisis and recession squeezed Americans.
Nigel Gault, chief U.S. economist at IHS Global Insight, said consumer spending will likely remain subdued in the second half of the year. He thinks it will grow at or below a 2 percent annual rate.
Gas prices have stopped falling and have even started to rise in recent weeks. And this summer's severe drought is expected to push food prices up toward the end of the year.
"There is really no reason to see us pulling out of this malaise any time soon," Gault said. "I am not calling for a recession, but I am calling for weak growth."
The U.S. economy has never been so sluggish this long into a recovery. The Great Recession officially ended in June 2009.
Until a few weeks ago, many economists had been predicting that growth would accelerate in the final six months of the year. They pointed to gains in manufacturing, home and auto sales and lower gas prices.
But threats to the U.S. economy have left consumers too anxious to spend freely. Jobs are tight. Pay isn't keeping up with inflation. Retail sales fell in June for a third straight month. Manufacturing has weakened in most areas of the country.
Fear is also growing that the economy will fall off a "fiscal cliff" at year's end. That's when tax increases and deep spending cuts will take effect unless Congress reaches a budget agreement.
All that is making companies reluctant to expand and hire much.
The Commerce Department also revised its growth estimates for the past three years. Those revisions showed that the economy contracted 3.1 percent in 2009, slightly less than the 3.5 percent previously reported. Growth in 2010 was put at 2.4 percent, down from 3 percent, with growth in 2011 at 1.8 percent instead of 1.7 percent.
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Associated Press Staff Writers Christopher S. Rugaber, Paul Wiseman and Tom Raum contributed to this report.
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.
After shrinking 3.1 percent in 2009 in the midst of the recession, the economy grew 2.4 percent in 2010. Last year, growth slowed to 1.8 percent - roughly the same meager pace at which the economy expanded in the first half of this year.
Even in normal times, such growth rates are subpar. They're especially weak for a recovery that follows a deep recession, when growth is typically much stronger than average.
Annual economic growth of 2.5 percent to 3 percent is needed to create enough jobs just to keep up with an expanding workforce. Healthier growth of 4 percent or more is needed to reduce the unemployment rate significantly.
The government makes three estimates of GDP for each quarter. Each revision is based on more complete economic data.
The sluggish growth rate could make the Federal Reserve more likely to announce some new step after it meets next week. But Paul Dales, senior U.S. economist at Capital Economics, doubts the Fed will act at the July 31-Aug. 1 meeting.
Many economists instead think the Fed will launch another round of bond buying at its September policy meeting. The aim would be to drive long-term interest rates lower and encourage more borrowing and spending.
In the second quarter, GDP in current dollars rose at an annual rate of $117.6 billion to $15.6 trillion.
Growth was weaker mostly because consumer spending slowed to a growth rate of just 1.5 percent. That was down from 2.4 percent in the first quarter.
Americans bought fewer autos, computers and other long-lasting manufactured goods. But money spent on services, which represents about two-thirds of spending, rose in the April-June quarter.
As they spent less, Americans also saved more. The savings rate reached 4 percent, up from 3.6 percent in the first quarter.
The savings rate reached a low of 1.5 percent in 2005, a year when soaring home prices made consumers feel less need to save. The rate climbed to 5.4 percent in 2008 as the financial crisis and recession squeezed Americans.
Nigel Gault, chief U.S. economist at IHS Global Insight, said consumer spending will likely remain subdued in the second half of the year. He thinks it will grow at or below a 2 percent annual rate.
Gas prices have stopped falling and have even started to rise in recent weeks. And this summer's severe drought is expected to push food prices up toward the end of the year.
"There is really no reason to see us pulling out of this malaise any time soon," Gault said. "I am not calling for a recession, but I am calling for weak growth."
The U.S. economy has never been so sluggish this long into a recovery. The Great Recession officially ended in June 2009.
Until a few weeks ago, many economists had been predicting that growth would accelerate in the final six months of the year. They pointed to gains in manufacturing, home and auto sales and lower gas prices.
But threats to the U.S. economy have left consumers too anxious to spend freely. Jobs are tight. Pay isn't keeping up with inflation. Retail sales fell in June for a third straight month. Manufacturing has weakened in most areas of the country.
Fear is also growing that the economy will fall off a "fiscal cliff" at year's end. That's when tax increases and deep spending cuts will take effect unless Congress reaches a budget agreement.
All that is making companies reluctant to expand and hire much.
The Commerce Department also revised its growth estimates for the past three years. Those revisions showed that the economy contracted 3.1 percent in 2009, slightly less than the 3.5 percent previously reported. Growth in 2010 was put at 2.4 percent, down from 3 percent, with growth in 2011 at 1.8 percent instead of 1.7 percent.
___
Associated Press Staff Writers Christopher S. Rugaber, Paul Wiseman and Tom Raum contributed to this report.
Maybe the Federal Government could just borrow or print a trillion dollars and give us all EBT cards and a special one that works in casinos... for Mrs. Vishess.
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I don't get it. I  thought massive government spending was the key to ice cream and cake for all of us. Maybe they have not spent enough? Please contact your Senator and demand that they give you someone else's money.
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I am positive there is absolutely no correlation between overall Government spending and private sector investments.
It amazes me that the political left continually talks about our great labor force and its abilities and then demonizes those who run businesses that create the jobs for that labor. Do they not understand that, 1) no business no job, and 2) business owners already pay double what most taxpayers pay and that almost half of our citizens pay no income tax at all???? At some point we have to recognize that the left has created an interest group the contributes NOTHING to our society and then claims they are a victim of it. It's not hard to understand why we have such a slow recovery when the drivers of recovery are threatened daily by our leadership.
 @yellow65 Agree. Most people and the media only report wages received by the employee. Then never report that businesses have to pay the other half of wages to the government (i.e. unemployment insurance, liability insurance, social security, medicare, workers comp, sick leave, local, county , state and federal taxes, B&O taxes, and the list goes on and on). Not to mention the risk assumed by the business owner of losing everything, their livelihood, their investment (which in most cases involves money borrowed against their homes, or money from relatives and friends). Union members don't risk anything, but they want all the benefit.Â
@GeorgeG. @yellow65 But they didn't build those businesses, the government gave it to them. The president was very explicit on that point and we all know he'd never tell a lie just to buy a few votes.
 @yellow65 "At some point we have to recognize that the left has created an interest group the contributes NOTHING to our society and then claims they are a victim of it."
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That would describe my Ex wife to a tee. She feels she's owned a living just because she's here. She's a victim of everything.
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I don't know how many more summers of recovery we can handle before our economy goes into a total meldown.
I think REGIONALLY we're doing quite well. The housing market is booming, there is limited inventory, Microsoft, Amazon, Boeing, Starbucks, Google and Facebook are all doing major hiring. My friends in real estate are insanely busy. My neighbor who is a general contractor has seen his business explode in the last 6 to 9 months. Retailers I talk to all tell me business has picked up. I see lines at restaurants again.
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I think NATIONALLY we've slipped into a recession. I think for those of us living in Washington and Oregon are more fortunate than many other regions in the country. The question is can our regional strength continue to shelter us. Boeing has huge number of airplane orders which will keep them busy for years. As people leave the dysfunctional mess HR has created at Microsoft, Amazon, Google and Facebook are happily hiring them up. This does "trickle" down to other employers and citizens.
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The average Microsoft employee is about a 10%, give a few years there and they are a 5%. Ditto for the other tech providers - each one of their jobs supports another 4 to 10 jobs in the region.
 @Howard Beale Of course, you assessment on the real estate market still ignores the massive overhang of shadow inventory and pending foreclosures. Anecdotal evidence of one or two people getting "busy" also connotes that more people are dropping out of the real estate business and seeking other jobs just to pay the bills. Microsoft has posted its first loss since it's been public. Facebook stock was at $36, it's now around $26 based on weak revenue growth. Tech companies rely on advertising dollars from retailers. If retailers aren't growing or making money, tech companies will have their primary source of income restricted. If the economy was strong in the region, then the unemployment rate would be much less than the current 8.3%, which is still a ridiculously high number. If the regional economy was really doing better, then municipalities and state revenues would be increasing to match expenditures, but they are not. Olympia is talking about another round of cuts. There may be small pockets of growth, but the larger economy is stuck in neutral. In sum, unless there is broad based growth, then there will be another recession, the Northwest included.Â
 @GeorgeG. Really, you're going to base the health of the economy on FACEBOOK stock? Please, explain to me Facebook's business model, their unique value proposition and why if I'm going to invest in an internet company that makes money selling ads why I would invest in Facebook over Google.
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Retailers are investing plenty in advertising (hello McFly, Google, or do you plan to ignore the largest online advertiser in your brilliant assessment).
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Expenditures vs. Taxes. Wow - OK - seeing how the state, county and city have all reported the shortfalls have bottomed out and tax collection is once again darn close to matching expenses - but hey, keep ignoring the good news. Never mind the limitations the government has on being able to raise taxes, and expenses, CPI, and non-CPI inflation is out stripping the revenue levels they can raise. Ya I know - little details.
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Shadow inventory? Again, do you follow any REAL information. Home inventory in Seattle - down to 1.8 months. King County 2.5 months. I know WAY more than a "couple" people in real estate. Everyone is crazy busy. Mortgage, title, insurance, real estate. They are also all complaining, there are no homes. There are tons of REO properties for sale. They're crap. No one wants to buy them. The banks neglected them and their actions are biting them in the butt. Why spend $300K on a REO property that needs $50K in work when you're handed the keys when you can buy new construction for $350K.
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You also, have a reading comprehension issue. I already wrote about nationally I think we're already in recession (ha, my optimistic friend, you don't think we're there yet). It also doesn't take a degree in economics to figure that if the national economy gets worse it will drag us down with it. But Puget Sound is well insulated right now.
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There are plenty examples of severe regional recessions while other areas boom. Decline and growth don't happen evenly. We were tardy to the national recession party as it was. The country was in full blown recession in 2007, this area didn't get dragged down until the 2008 banking crash. Some housing markets like in Boston and Cleveland bottomed out almost two years ago, we hit our bottom around March of this year (and if we're having a dead cat bounce, its an impressive one).
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So no kidding we "could" get dragged into the recession. I would suggest you go back above and re-read what I wrote.
@Howard Beale
I know you've been saying that for quite awhile but those home values have continued down despite your reports of recovery. I can't find one agent anywhere telling me its "booming". The 16 building trades unions have thousands sitting on the bench so I dont know what your neighbor builds, but I know it aint big enough to employ more then his family and friends and it must be special because I dont see any other contractor's business "exploding".
Last weekâs dismal âdata dumpâ has or, at least should have ended all talk of a strong recovery or any recovery whatsoever in the US. Retail sales, factory output, jobless claims, consumer confidence, business investment and existing home sales are all down sharply indicating that the US economy is decelerating and I dont believe we were ever out of a recession if you looked anywhere besides government reports. Where do you live? Norway?
 @T_BONE_WALKER  @HowardÂ
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Source please for falling Puget Sound home prices in 2012. Prices are up 11% from this time last year and are rising 5% month over month since April. Inventory in Seattle is just 1.8 months. That's it. Inventory in all of King County is just 2.5 months. In the under $500K market the competition among buyers is beyond fierce.
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Idled builders? Friends can't find construction jobs?!? They aren't looking hard. Bothell, Mill Creek, North Creek, Lynnwood, Woodinville they are building like crazy. Autumncrest literally can't build them fast enough, Logan Point is sold out, another Quadrant development in Bothell on the other side of 228th has expanded four times. They're building $600K homes basically under power lines and people are lining up to buy them. Then you have the development on the far side of Gun Range hill, again 1/2 million dollar homes - at least at this development you won't hear the gun range because I-405 is your backyard. Building like crazy.
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I don't know what gloom and doom area you live in, but I live in Puget Sound. Sounds to me like you live in North Las Vegas.
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You also have a very serious reading comprehension problem. I said REGIONALLY we are doing well, NATIONALLY we are already in recession. If we were in NYC or Boston I would say the same thing.
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Washington state has one of the best GDPs in the United States, our state GDP is growing at a rate of over 2%. Unemployment is dropping. Sales tax collection has bottomed out as reported by King and Snohomish county and the city of Seattle - indicating consumers are no longer holding back. Car sales, which you ignored in your gloom and doom picture, could top 14 million units for the United States this year (and admittedly the only thing left propping up nation GDP numbers).
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If you're going to cry a river of gloom and doom - at least toss out some real regional facts that can be backed up. Oh, and I know more more than a "couple of people" in the real estate industry. Everyone I know is as busy as heck, the biggest problem is finding them homes to sale.
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Shadow inventory? I believed in that until a few months ago. If there is shadow inventory than the banks are crazy here in Seattle because at 1.8 months inventory with a huge sellers market, you think they would be releasing the hounds. The whole "shadow inventory" theory appears to be a tin foil hat concept -- I've walked away from it because in the regional booming markets, the "shadow inventory" isn't coming out to be sold.
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But I will say that on my way to work there are four foreclosures I drove by every day. All four clearly went to REO. All four received minimal care from the bank. Three ended boarded up. Three of them are now sold/occupied - the fourth is in renovation (caught my eye because it was the most run down of the three).
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If there is inventory - there are buyers. With rates so low, FHA down to 660 (lower possible if you jump through some hoops) and conventional at 720 not hard to get paper written. Shoot you can do conventional at 5% down with prepaid PMI well under $10K.
 @T_BONE_WALKER  @HowardÂ
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One more time. I said regionally we're doing well (and the regional data supports that statement). Nationally I feel the situation is worse that the data and we are already in recession.
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How much more explicit do I have to be.
@Howard Beale @Howard One more time, just focus on last week's "data dump" and tell me how this figures into your "recovery" and increases values just as buyers are less likely to be able to buy?
@Howard Beale @Howard You really do have a dog in this race huh? Manipulation is occuring when the banks refuse to put all foreclosed properties on the market for sale. They are holding millions of foreclosed properties while you and others try and convince folks that a bottom is in, even while government reports dispute what you're dreamin. Its rather old now that you've been spouting this crap for a year and you've been proven wrong at every turn while again telling people its a new day and tell us new impressive ways to figure property values.
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I aint buying your BS and, from the numbers, I'd say nobody else is either. Maybe you should come back to real estate sales later and try something else in the meantime.
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There is a huge supply with little demand and that is what is continuing to devalue properties cut and dried, thats how it works. Thanks
 @T_BONE_WALKER  @Howard  @HowardÂ
Property value statements are a lagging indicator. This was explained back in 2009 and 2010 when people were screaming that their properties were "over valued" by the government. If you really think tax assessment value is tied to real market value you're living in a fantasy land. Next thing you'll be showing Zestimates as "reality."
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Manipulation? Ya, right. With the new rules that appraisers are under, with how tight mortgages are, and with the weak can't really sell to save their lives real estate agents out of the game. You can't have an appraiser come in and over value a property just because - please try it. It isn't happening. Let alone being unqualified for a mortgage. Trying and get a 0% down mortgage with a 580 and no documents. Shoot try and get a mortgage with a 640 and documents and 5% down! Good luck with that.
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You can bury your head in the sand all you want but huge fact remains.
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Seattle inventory 1.8 months.
King County inventory 2.5 months.
Lender standards remain high.
Appraisals remain realistic.
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That is a sellers market. You clearly subscribe to a non-factual based view of economics, and use what any voodoo you can find in the numbers to support your bearish point.
@Howard Beale @Howard Source? How bout property value statement down 11% for the year again. Your inventory numbers are way off as the shadow inventory has nine years of back log selling at '06 rates of sales. If anyone is selling 600k shacks, supply and demand didn't set that price, manipulation did and we can see how that all worked out for us. Values are down and wages continue to contract and those dictate price more then your wish list. You sound like an agent with the whole "its a new day spiel"
"Last weekâs dismal âdata dumpâ has or, at least should have ended all talk of a strong recovery or any recovery whatsoever in the US. Retail sales, factory output, jobless claims, consumer confidence, business investment and existing home sales are all down sharply indicating that the US economy is decelerating" which part of this statement do you wish to argue? This is the government finally admitting it, why not you?