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Economy treading water as jobless rate edges up

By Neil Irwin
Washington Post Staff Writer
Friday, September 3, 2010; 10:22 PM

It's not a recession, and it's not much of a recovery. Instead, the U.S. economy is treading water.

In a mixed portrait of the labor market, government data released Friday showed that the unemployment rate rose to 9.6 percent, the Labor Department said Friday, from 9.5 percent in July. Private employers added 67,000 jobs, better than analysts expected but well below the level of job growth needed to keep up with labor force growth.

The new jobs report, coupled with other recent data, offers a portrait of an economy that is neither growing fast enough to bring down joblessness nor sinking back into a new downturn.

"It's not the recovery that we would think we're entitled to given how deep the recession was, but it's also not indicative that the economy is gasping and falling back into recession," said Alan Levenson, chief economist at T. Rowe Price.

The report was strong enough to drive the stock market up 1.3 percent for the day, as measured by the Standard & Poor's 500-stock index. But it was also weak enough to keep pressure on President Obama and Congress to try to find new ways to spur job creation.

Obama called the eighth straight month of private-sector job growth "positive news" but added that "it's not good enough."

"It took years to create our current economic problems, and it will take more time than anyone would like to solve our problems," the president said Friday in the Rose Garden.

The president will offer some proposals to try to strengthen the economy Wednesday, according to a post on the official White House blog, including extending tax cuts for middle- and low-income people and targeted steps to support growth.

According to sources familiar with White House deliberations, officials are also weighing business tax breaks meant to spur hiring, such as a temporary payroll tax holiday and a permanent extension of a tax credit for research and development. The sources spoke on the condition of anonymity because the plans have not been released.

A slew of economic indicators in recent weeks have pointed to a slowing recovery. Gross domestic product grew at a tepid 1.6 percent annual rate in the April through June period, well below the nations' long-term growth rate, and forecasters aren't expecting readings from late summer to come out much stronger than that.

And the number of Americans filing new unemployment benefit claims has hovered near recessionary levels in recent weeks, despite an economic expansion that has now been underway for a full year.

The new jobs report was good news against that gloomy backdrop, though not against any normal economic measuring stick.

Overall, the nation shed 54,000 jobs last month, but that number included a large number of temporary workers dismissed by the Census. The 67,000 private jobs added was above the 40,000 or so that analysts had forecast. Private job creation in July was revised up to 107,000, up from 71,000 earlier estimated.

Meanwhile, the rise in the jobless rate was caused by 550,000 people, perhaps feeling more confident about their job prospects, entering the labor force.

In another sign of the slowing pace of economic growth, the Institute for Supply Management said Friday that its index of activity at service businesses fell in August, to 51.5 from 54.3

Although nonmanufacturing businesses were still expanding last month, according to the index, it was both at a slower pace than in July and the service sector's pace of growth deteriorated faster than analysts had expected.

But sluggish growth will not be powerful enough to bring down unemployment, economists said.

"There are millions of people out of work, and we're just not growing fast enough to change that," said Douglas Holtz-Eakin, president of the American Action Forum, who has advised many Republican elected officials. "We are in an economy with a long-term growth problem, and we need to concentrate across the policy spectrum with things that will enhance growth."

Although Republicans such as Holtz-Eakin and Democratic economists differ on the mix of policies that will change that situation, few dispute the underlying math of high unemployment and job growth too slow to bring it down.

"We are continuing to dig our way slowly out of the hole caused by the deep recession, and we still have a long way to go before the economy is generating all of the jobs we need for the labor force," Alan Krueger, the Treasury Department's chief economist, said Friday.

But he pointed to private-sector employment expansion over the past eight months as a sign that the economy is "moving in the right direction."

irwinn@washpost.com Staff writers Brady Dennis, Anne Kornblut and Lori Montgomery contributed to this report.

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