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by Don Azarias
January 31, 2011
It looks like we have some good news with regard to the U.S. unemployment rate for a change. The latest economic reports indicate that employers are laying off fewer workers during the last quarter of 2010. The reports also suggest that businesses are ordering more merchandise to stock up their shelves and that consumers are opening their wallets and making significant spending as of late.
Altogether, the latest data confirm that the economy is improving, even though not enough jobs are being created to make a dent on the 9.8 percent unemployment rate. According to the Labor Department, the number of people seeking unemployment benefits edged down by 3,000 to a seasonally adjusted 420,000. That was the second drop in three weeks.
As per the commonly accepted economic standard, unemployment applications at around 425,000 signal modest job growth. But economists say the number would need to dip consistently to 375,000 or below to indicate a significant decline in unemployment. Weekly applications peaked during the recession at 651,000 in March 2009.
According to the Commerce Department, demand rose for computers, appliances and heavy machinery. However, total orders for durable goods dropped 1.3 percent because of lower demand for aircraft and autos. But excluding transportation, orders surged 2.4 percent. Personal spending rose last month generating significant increase in consumer spending during the holiday seasons. Spending increased 0.4 percent, the fifth straight monthly increase. Consumers’ incomes grew 0.3 percent lifted by gains in stock portfolios but wages and salaries remain stuck in their current level.
Also, according to government report, depressed housing markets remain the biggest drag in the economic recovery. While more people bought new homes in November, it’s still not enough to indicate better times for the slumping housing industry. Sales rose 5.5 percent to a seasonally adjusted annual rate of 290,000 units. Economists, however, are quick to point out that that rate falls short of what they consider acceptable to spur economic growth. The market for existing homes is also struggling. Meager home sales, along with millions of foreclosures, could further drive home prices down. That would impact consumers’ net worth and prevent them from opening their wallets to make big purchases and, thus, preventing the budding economy from taking its roots.
Rising oil prices might also hurt the economy. It’s closing in on a $100 a barrel price range. Gas prices have also jumped in all 50 states. Consequently, that would take money from consumers that they would otherwise use to buy goods and services.
However, economists are expecting the economy to show a significant growth this year as consumers spend more freely. Most Americans will have more cash to spend because of a cut in Social Security taxes that Congress approved earlier last month. But the budding economic growth won’t yet have enough strength and firepower to bring down the stubborn unemployment rate.
Many analysts are predicting that the economy will grow at a 3.5 percent to 4 percent annual pace next year. That would be up from an expected 2.8 percent pace this year. Economists generally say growth needs to reach 5 percent for a full year to bring down the unemployment rate by 1 percentage point. Many expect the rate to be near 9 percent by the end of next year.
Weekly unemployment benefit applications serve as the barometer in analyzing the job market. If they continue to move down, as what is happening now, hiring is more likely to pick up. Applications reflect the level of layoffs but can also indicate whether companies are willing to hire workers. As I have indicated earlier, fewer people are receiving unemployment benefits. The number of people continuing to receive unemployment benefits fell by 47,000 to 4.1 million in the week ending Dec. 25, the department said. That doesn’t include millions of long-term unemployed who are receiving extended benefits from the federal government under an emergency program set up during the recession. Another 4.7 million people received benefits under the extended program, which offers up to 99 weeks of aid in states with high unemployment. All told, about 8.8 million people were on the benefit rolls in the week ending Dec. 18, the most recent data available. That’s down from about 8.9 million in the previous week.
Economists say that many recipients likely used up all their benefits, while some may have already found employment.
As we enter 2011, there are real signs of an improving economy. However, it may take a while before majority of the Americans feel its effect in their daily lives. The economy, based on leading economic indicators, is starting to turn around. Nevertheless, other economists and analysts are not betting on it.
And should we?