Pace of Economic Recovery Slows
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% growth rate in the first quarter, the economy stumbled in the spring, growing at an annual rate of just 1.1%.
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 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.
The number of unemployed people continuing to collect jobless benefits jumped by 90,000 to 3.6 million for the week ended Aug. 17, the most recent period for which information is available. That suggests not a lot of hiring is going on, economists said.
The nation’s unemployment rate--now at 5.9%--could hit 6.3% or 6.5% by the fall, economists said.
Analysts believe the economy has picked up a bit in the current quarter, with some estimating growth rates of 2% to 3%. They said economic growth would have to be stronger for businesses to add vigorously 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 Federal Reserve, hoping to give a boost to the recovery, has held short-term interest rates steady all year.
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% in the second quarter, down from a 2% 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%, 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% in the second quarter, stronger than previously estimated.
