With Recovery
Slowing, the Jobs Outlook Dims
Published: July 30, 2010 - New York Times
There is no more disputing it: the economic recovery in the United States has
indeed slowed.
The nation’s economy has been growing for a year, with few new jobs to show
for it. Now, with the government reporting a growth rate of just 2.4 percent in
the second quarter and federal stimulus measures fading, the jobs outlook
appears even more discouraging.
“Given how weak the labor market is, how long we’ve been without real growth,
the rest of this year is probably still going to feel like a recession,”
said Prajakta Bhide, a research analyst for the United States economy at Roubini
Global Economics. “It’s still positive growth — rather than contraction — but
it’s going to be very, very protracted.”
A Commerce
Department report on Friday showed that economic growth slipped sharply in
the latest quarter from a much brisker pace earlier, an annual rate of 5 percent
at the end of 2009 and 3.7 percent in the first quarter of 2010. Consumer
spending, however, was weaker than initially indicated earlier in the recovery.
Many economists are forecasting a further slowdown in the second half of the
year, perhaps to an annual rate as low as 1.5 percent. That is largely because
businesses have refilled the stockroom shelves that were whittled down during
the financial
crisis, and there will not be much need for additional orders.
Additionally, the fiscal stimulus measures that have propped up growth are
expiring. Proposals for individual programs like another expansion of
unemployment benefits have been beaten back each time they have come up in
Congress.
“We need 2.5 percent growth just to keep the unemployment rate where it is,”
said Christina
Romer, chairwoman of the president’s Council
of Economic Advisers. “If you want to get it down quickly, you need
substantially stronger growth than that. That’s what I’ve been saying for the
last several quarters, and that’s why I’ve been hoping that we’ll please pass
the jobs measures just sitting on the floor of Congress.”
The approaching midterm elections, however, may harden the political standoff
after Congress returns from its August recess. As a result, pressure will
probably increase on the Federal
Reserve to use its available tools to prevent a double-dip recession. Recent
reports from Fed policy makers suggest the central bank has become
increasingly worried about where the economy is headed.
American businesses, if not American households, seem to be hanging on.
The crucial driver of growth in the second quarter was business investment in
such things as office buildings and equipment and software. Such activity
rocketed up at an annual rate of 17 percent in the second quarter, compared with
a 7.8 percent increase in the first. The equipment and software category alone
grew at an annual rate of 21.9 percent, the fastest pace in 12 years.
“We’re seeing a sort of handover from consumer spending to capital spending,”
said John Ryding, chief economist at RDQ Economics. “The consumer also looks to
have saved more than we thought before, which means they’re perhaps further on
the road to financial adjustment than we thought they were previously.”
Consumer spending, which is usually a leading indicator of a recovery and
which accounts for most economic activity in the United States, has been
leveling off. It grew at an annual rate of 1.6 percent in the second quarter
after a 1.9 percent rate in the previous quarter.
Personal savings was estimated at 6.2 percent of disposable income last
quarter, significantly higher than the 4 percent that had been estimated
earlier.
A separate
report released on Friday by the University
of Michigan and Thomson
Reuters showed that consumer confidence tumbled in July.
The fact that businesses seem to be investing more in equipment than in
hiring may be a reason consumers have been reluctant, or perhaps unable, to pick
up the pace of their spending.
“There are limits on the degree to which you can substitute capital for
labor,” Mr. Ryding said. “But you can understand that businesses don’t have to
pay health care on equipment and software, and these get better tax treatment
than you get for hiring people. If you can get away with upgrading capital
spending and deferring hiring for a while, that makes economic sense, especially
in this uncertain policy environment.”
The government painted a portrait of a deeper recession when it also released
revised data for the last three years on Friday. Over all, 2009 and 2008 were
slightly worse than previously reported, but the first quarter of 2010 was
better.
As the global economy recovers, America’s trade has picked up. But imports
once again grew faster than exports. Imports grew at an annual rate of 28.8
percent, the biggest jump in a quarter-century, compared with a 10.3 percent
gain in exports.
Government spending shot up more than many anticipated, at an annual growth
rate of 4.4 percent after a decline of 1.6 percent in the first quarter. Public
spending was broad-based, with even state and local expenditures increasing for
the first time in a year. Local governments may have taken advantage of warmer
weather to use more of their federal stimulus money.
“You could see this in the monthly number for state and local construction
spending,” said Nigel Gault, chief United States economist at IHS Global
Insight. “Construction slows down during winter months, so stimulus may not have
been doing as much earlier this year.”
Other policy initiatives, like the homebuyer’s tax credit, also appear to
have lifted demand. Consumers rushing to take advantage of the credit as it was
nearing its expiration pushed up spending on housing and related property
investments by an annual pace of 27.9 percent in the second quarter. Such
spending had fallen 12.3 percent the previous period.
“This will almost certainly reverse hard next quarter,” Jay Feldman, director
of economics at Credit
Suisse Securities, wrote in a note to clients.