Cloudy Outlook for Economic Recovery
Two articles from Associated Press show concerns over Job Growth and Economic Recovery, warning we lack the Tools to prevent a Double-Dip recession.

As economic clouds gather, recovery tools remain scarce

By Tom Raum, ASSOCIATED PRESS, 7/02/2010
http://www.statesman.com/business/analysis-as-economic-clouds-gather-recovery-tools-remain-783594.html

Just when they might be needed the most, the rescue ropes that hauled the nation out of the Great Recession have become badly frayed.

A much-feared "double dip" economic downturn would find interest rates already slashed to near zero by the Federal Reserve and lawmakers leery of voting for billions of stimulus dollars as they face re-election.

The government's jobs report Friday added to the sense that the recovery is losing steam, signaling that it could be years — not months — before the employment rate returns to pre-recession levels.

"We're adding jobs — but at an excruciatingly slow pace," said labor market economist Heidi Shierholz of the Economic Policy Institute, a think tank. "Double dip or no, this is going to be an enormously long slog."

The traditional mechanisms for blunting economic pain and nurturing a recovery are either no longer available or simply not working:

• Unemployment benefits for hundreds of thousands of Americans are running out or have already expired. Successive congressional attempts to extend them anew have failed amid partisan wrangling on Capitol Hill.
[With extended unemployment comes an increase in mortgage defaults and foreclosures, which lowers home prices and property taxes in a downward spiral.]

• Lower taxes, often used as a quick remedy for economic distress, have already been tried. Now taxes are probably going up. The special homebuyer tax credit expired on April 30, and an array of income and investment tax breaks — pushed through Congress by former President George W. Bush — are due to expire in 2011 without congressional action to extend them. [Two articles by Robert Reich and Dean Baker describe the widening income gap between wealthy elites and average workers and ways to fix our economic woes.]

• Mortgage rates have sunk to their lowest level in more than five decades. That should be good news for the battered housing industry and put cash into the hands of homeowners as they refinance. But a wave of refinancing hasn't materialized, as the many homeowners who owe more than their homes are worth can't easily do so.
[There's already a glut of housing. We don't need to stimulate homeownership. We need to regulate homebuilding.]

• The Federal Reserve, in holding a key short-term interest rate near zero percent since December 2008, cannot spur growth with further rate cuts. Although there are other steps the Fed can take, such as direct loans, further increasing the money supply or buying mortgage-related securities, many such programs already have ended or are being wound down. [The middle class, with its declining employment and salaries, doesn't have enough purchasing power to fuel an economic recovery.]

• Federal aid to cash-strapped states, including Medicaid grants and money to avoid layoffs, is drying up, and efforts by President Barack Obama and his congressional allies to extend and enhance them have been thwarted by partisan battles in Congress.

Obama's plea to stimulate economic growth now and cut deficits later got a mixed response from world leaders at the G-20 summit in Toronto last weekend. And, with polls showing rising concern among U.S. voters over government red-ink spending, Congress hasn't been a whole lot more receptive.

The Labor Department report showed the overall jobless rate fell to 9.5 percent in June from 9.7 percent in May. But that was largely because many people gave up looking for work, not because employers added enough jobs to bring the rate down. [Recovery needs at least 200,000 new jobs each month, but we've seen less than half of that and are losing ground. As unemployment benefits run out, more will likely drop out of the job market, hopefully to return to school and retool skills.]

Economist Mark Zandi, founder of Moody's Economy.com, said those unemployment numbers "make me nervous. They show that the labor market is losing momentum. And right now, we're in such a precarious situation."

Zandi said he thinks the economy will continue to grow, not slip back into recession, "but it's going to be close," especially if Congress doesn't come up with more help for states or extend unemployment insurance.

The recession began in December 2007, according to the National Bureau of Economic Research, the group of academic economists that dates the beginning and end of recessions. The group has not yet announced an end, although many economists say the recession probably ended last summer.

But the recovery may be beginning to weaken under the weight of continued high joblessness, flagging consumer confidence and fears that Europe's financial crisis will spread to the United States — or at least harm U.S. exporters.

"The economic recovery is clearly faltering," says Peter Morici, an economist at the University of Maryland.

And what if it falls into double-dip territory? "We stay there," Morici said. "If we have a negative quarter or two, we may not recover. The economy just doesn't have enough momentum this time."

Job market not growing fast enough for big rebound

By JEANNINE AVERSA, The Associated Press, 7/01/2010
http://www.statesman.com/news/nation/job-market-not-growing-fast-enough-for-big-779809.html

A second straight month of lackluster hiring by American businesses is sapping strength from the economic rebound.

The jobless rate fell to 9.5 percent in June, still far too high to signal a healthy economy. It came in slightly lower than the month before only because more than a half-million people gave up looking for work and were no longer counted as unemployed.

The private sector added just 83,000 jobs for the month. Looked at from that angle or almost any other, from a teetering housing market to falling factory orders, the recovery is limping along as it enters the year's second half. And that is when the benefits of most of the government's stimulus spending will begin to wear off.

The fate of the economy will hinge on whether it can stand on its own. President Barack Obama acknowledged the slow pace of the recovery and used the new jobs figures to argue for more stimulus spending and extended unemployment benefits.

"We're not headed there fast enough for a lot of Americans," the president said. "We're not headed there fast enough for me, either."

Overall, the nation's total payroll actually shrank last month by 125,000, the first decline in six months, the Labor Department said Friday. The loss reflected the end of 225,000 temporary jobs helping the U.S. Census Bureau complete its 10-year head count.

The 83,000 jobs added by the private sector was a better performance than in May, when private job creation nearly stalled. But it fell far short of what the economy needs — at least 200,000 jobs a month — to bring down the unemployment rate.

Nobody, from Obama to Federal Reserve Chairman Ben Bernanke to private economists, expects that anytime soon. And the government has mostly exhausted its realistic options for nudging the economy along faster.

Benchmark interest rates, which at low levels can encourage borrowing to spur economic growth, are already near zero. Republicans in Congress object to additional stimulus spending.

Unemployment is expected to stay above 9 percent through the midterm elections in November. And the Fed predicts joblessness could still be as high as 7.5 percent two years from now. Normal is considered closer to 6 percent, and economists say it will probably take until the middle of this decade to achieve that.

The jobless rate did come down in June from 9.7 percent the month before. But that was mainly because 652,000 people abandoned their job searches.

Even among Americans with secure jobs, confidence is fading. One gauge of consumer confidence fell in June to about 53, down nearly 10 points in a single month. And it's well below the reading of 90 typically seen in a healthy economy.

Add to that jitters over Europe's debts, an edgy stock market and cautious consumer spending, and the result is an economy essentially moving sideways. It's no surprise that businesses are reviewing their orders and seeing no reason to add to payrolls.

Few big companies say they plan to step up hiring in the second half of the year. Most auto, airline and railroad companies, for example, say they expect little or no job growth, blaming weak demand.

One that does plan to hire, Chrysler Group LLC, expects to add engineers and other workers as it updates its aging line of cars and trucks. The company has announced 1,000 factory jobs in Detroit to meet demand for the new Jeep Grand Cherokee SUV.

But other companies, like American Airlines, have no plans to significantly boost hiring this year. And major railroads, which have furloughed thousands since the recession, say they have no plans to add employees in the coming months.

In June, manufacturers, the leisure and hospitality industries, temporary staffing agencies, and education and health services providers all added jobs. Retailers, construction firms and financial service providers cut payrolls. So did state and local governments, which are wrestling with budget shortfalls.

On Wall Street, stocks sagged yet again on the news. The Dow Jones industrial average finished down 46 points, its seventh consecutive losing session. The Dow lost more than 10 percent of its value in the second quarter.

Trying to put a positive outlook on the report, Obama said it showed that "we are headed in the right direction." At the same time, he acknowledged there is a "great deal of work to do to repair the economy and get the American people back to work."

His options are limited. Senate Republicans concerned about record budget deficits this week blocked his efforts to extend unemployment benefits for millions of out-of-work Americans.

"The two things that are growing fastest in this Democrat economy are the size of the federal government and the crushing burden of the national debt," said Senate Republican leader Mitch McConnell of Kentucky, who led opposition to the extension.

All told, 14.6 million people were unemployed in June. An additional 11.2 million have given up their job searches or are working part-time but would prefer full-time work. That adds up to nearly 26 million Americans, and an "underemployment" rate of 16.5 percent.

Among the 225,000 census workers who lost their temporary jobs in June are people who had been unemployed before and now are again. One of them is Michael Stein, who worked for the census in Phoenix on and off since April 2009, after losing his job with an architectural firm.

It all ended for good two weeks ago.

Jobless again, Stein, 49, at least feels better off with the census experience on his resume.

"I was told the State of Arizona is hiring again," he said. "Because of the people I met at the census, there's a possibility if they could find the right position, they'll put in a good word for me."

Eric Model, co-owner of Seal & Co., a shop in Summit, N.J., that sells accessories and toys, said he has not replaced the two back-office workers he let go two years ago. Not including a summer hire, Model has four employees, plus himself.

"It would be nice to get some support," Model said. "But I don't want to go out on a limb and hire somebody, anticipating things will improve. I would rather run with low expenses."

Those Americans who still have jobs drew smaller paychecks last month. Average hourly wages fell 2 cents to $22.53. Workers' hours were cut, too. Those factors could dampen consumer spending in the months ahead and further weaken the recovery.

It all threatens to perpetuate a vicious cycle for the economy.

"It is a Catch-22 situation," said Sung Won Sohn, professor at California State University, Channel Islands. "Businesses are reluctant to hire for fear of a 'double-dip' recession. Without jobs, people are watchful of their spending, a danger to the recovery."

___

AP Business Writers Tom Krisher in Detroit, Terry Tang in Phoenix, Harry Weber in Houston, Joshua Freed in Minneapolis, Christopher Leonard in St. Louis and Samantha Bomkamp and Anne D'Innocenzio in New York contributed to this report.