Jobless claims jump to nine-month high
Friday, August 20, 2010
More people filed new claims for unemployment benefits last week than at any time since November, providing additional evidence that the economic recovery has stalled and turning up the reelection pressure on incumbents.
Forecasters had expected the number of new weekly jobless claims to drop last week. Instead, claims jumped by 12,000, to 500,000, the third straight weekly increase and the first time in nine months that the half-million mark has been hit.
The figure is still lower than it was this time last year, when more than 550,000 Americans were filing jobless claims each week, and well off the recession highs of March 2009, when more than 640,000 new claims were coming in each week.
But Thursday's news was especially discouraging, not only because new jobless claims are back on the rise but also because they never dropped low enough for lasting job creation to begin. Economists say that the weekly claims number needs to get into the low 400,000s and stay there before employers will start hiring new workers and bringing back laid-off ones. Indeed, the economy needs to add 125,000 jobs each month merely to keep up with population growth.
Instead, "this report indicates that the pace of firings and layoffs has increased," Barclays Capital wrote in a report.
Wall Street greeted Thursday's jobs data with a big sell-off, sending the Dow Jones industrial average on a triple-digit dive and erasing Wednesday's gains. The Dow closed down 1.4 percent at 10,271.21, while the broader Standard & Poor's 500-stock index and the tech-heavy Nasdaq each closed down 1.7 percent. The Dow is down 1.5 percent for the year.
President Obama acknowledged the sour jobs news and used it to urge lawmakers to pass the stalled small-business jobs bill when they return from recess Sept. 13. A Labor Department report Wednesday showed that 62 percent of all jobs lost in the fourth quarter of 2009 came from businesses that employed 50 or fewer people.
The official U.S. unemployment rate as of July stands at 9.5 percent. If the 1.2 million unemployed who have given up looking for work and those who want to work full time but can only find part-time jobs are factored in, however, the rate of U.S. underemployment is 16.5 percent. As such, political leaders are under pressure to do something as midterm elections loom in November.
In the name of rescuing the economy and creating jobs, the Obama administration implemented an $862 billion stimulus plan, a cash-for-clunkers rebate plan, a tax credit for home buyers and other government-paid-for programs. As a result, the unemployment rate topped out at 10.1 percent last October. It has not been below 9 percent since April 2009.
But such government-fueled stimulus has added to the federal budget deficit and national debt, which have become issues in the November election. A CNN-Opinion Research poll this week showed that the economy is the biggest problem in the minds of voters, followed closely by unemployment and the deficit.
On Thursday, the Congressional Budget Office said the 2010 federal deficit would hit $1.3 trillion, the second-largest in history, trailing only 2009's $1.4 trillion deficit.
"With the November elections just two-and-a-half months away, every single economic data point becomes more of an influence and policy cries of 'Do Something' will only intensify," Miller Tabak equity strategist Peter Boockvar wrote Thursday. "Our response to that should be 'Do Nothing, Less is More.' "
For congressional Republicans, doing nothing would mean not letting the Bush tax cuts expire Jan. 1. Republicans and conservatives argue that tax cuts will stimulate the economy by keeping more money in the hands of consumers, as consumer spending accounts for 70 percent of U.S. gross domestic product.
Obama is for extending the tax cuts except for the wealthiest Americans -- households making more than $250,000 per year. But conservatives argue that it is the wealthiest Americans who have the most capacity to create jobs, and that reinstating taxes on them will stunt economic growth.
Wall Street is dialing back its expectations for how the economy will perform in the coming months.
On Thursday, economists at J.P. Morgan Chase cut their forecast for growth in the U.S. economy for the remainder of the year by one percentage point in each quarter. In the current quarter, they said, the economy will grow at a rate of 1.5 percent, increasing to 2 percent in the fourth quarter. In a healthy economy, the economy grows at a rate of 3 to 4 percent.