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Home / Government / Economic reports point to gradual recovery (3:21 p.m. 12/17/09)

Economic reports point to gradual recovery (3:21 p.m. 12/17/09)

AP Economics Writers

WASHINGTON (AP) — A report on unemployment claims and a forecast of U.S. economic activity pointed Thursday to an economy mending slowly, without the job growth needed to fuel a vigorous recovery.

The number of newly laid-off workers filing claims for unemployment benefits unexpectedly rose last week. But the four-week average for jobless claims, which smooths out fluctuations, fell. That was an encouraging sign that the pace of layoffs continues to decline. The four-week average is now at its lowest point since late September 2008, when the financial crisis hit with full force.

Separately, a forecast of economic activity rose for the eighth straight month in November, a private research group said, signaling the economic rebound will continue into next year.

Still, employers across the country remain reluctant to ramp up hiring.

“People who have already lost their job are having incredible difficulty finding a job,” Dan Greenhaus, an economist at Miller Tabak, said in a research note Thursday.

A big problem is that companies lack confidence in the strength and sustainability of the recovery. FedEx Corp., for example, offered a tepid outlook Thursday for the quarter that ends in January. The package delivery company expects the recovery to continue next year. But FedEx questioned whether demand for its services will stay strong after the peak holiday-shipping season.

Stocks fell on concerns about a still-weak job market and after FedEx’s forecast fell short of expectations. In mid-afternoon trading, the Dow Jones industrial average was down 98 points, or about 0.9 percent. Broader stock averages also fell.

The Conference Board said its index of leading economic indicators rose 0.9 percent last month, up from 0.3 percent in October. The latest reading beat the 0.7 percent rise that economists surveyed by Thomson Reuters had expected.

The board forecasts economic activity by measuring claims for unemployment aid, stock prices, consumer expectations, building permits for private homes, the money supply and other data. Improvements in financial conditions, housing permits and the labor market boosted the index, said Conference Board economist Ataman Ozyildirim.

Some analysts cautioned that the eighth consecutive gain in the index of leading indicators was overstating the economy’s underlying strength.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, noted that the index did not adequately reflect smaller companies.

“The index takes no account of the dire state of the small business sector, which … remains in deep recession,” he said.

The Labor Department’s report on unemployment claims said the number of new claims rose to 480,000 last week, up 7,000 from the previous week. That was a worse performance than the decline to 465,000 that economists had expected.

But the four-week average dipped to 467,500, the 15th straight decline. By comparison, jobless claims peaked this year at 674,000 in March. The improvement is seen as a sign that job cuts are slowing and that hiring could pick up early next year, boosting the economy.

Analysts say initial claims for jobless aid would need to fall to about 425,000 for several weeks to signal the economy is beginning to add jobs.

The government said that the number of people continuing to receive regular benefits rose by 5,000 to 5.19 million for the week ending Dec. 5. That figure does not include millions of people who have used up the regular 26 weeks of benefits typically provided by the state and are now receiving extended benefits for up to 73 additional weeks.

The people receiving extended benefits jumped to 4.73 million for the week ending Nov. 28, an increase of 143,759 from the previous week. That big rise reflected the fact that 17 states are now processing claims for the extension of benefits that Congress approved last month.

Economists worry about whether economic growth in 2010 can match that of the second half of this year, with unemployment high, credit still tight and the effects of government stimulus programs ending.

David Wyss, chief economist at Standard & Poor’s in New York, said he thought the economy in the current quarter is probably growing around 3 percent, close to the 2.8 percent growth rate of the third quarter. But he’s forecasting that growth will slip for most of next year to around 2 percent.

Wyss said the slowdown will occur because of the fading of government efforts to rejuvenate the economy, from the Cash for Clunkers incentives to the tax credit for home purchases to the $787 billion economic stimulus program.

“Even though the spending will continue, it won’t give the economy the surge it did when the programs kicked in,” he said. “For that reason, we are expecting slower growth in 2010.”

Wyss predicts unemployment, now at 10 percent, will keep rising until the middle of the year, peaking at around 10.5 percent, and then declining slowly. He said he expected the jobless rate by the end of next year to stand where it is now — 10 percent.

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