Ahead of the Bell: Unemployment Benefits

AP News
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Posted: Jul 21, 2011 7:01 AM
Ahead of the Bell: Unemployment Benefits

Fewer people likely applied for unemployment benefits last week, economists forecast. That would be the third straight decline and a sign that the job market is improving.

Economists expect that weekly applications dropped 5,000 to a seasonally adjusted 400,000, according to a survey by FactSet. The Labor Department will issue the report at 8:30 a.m. Eastern on Thursday.

Still, applications have topped 400,000 for 14 straight weeks, evidence that layoffs are high and hiring is weak.

Applications had fallen in February to 375,000, a level that signals sustainable job growth. They stayed below 400,000 for two months, but applications then surged to an eight-month high of 478,000 in April and have declined slowly since then.

The economy has faltered this year as consumers, besieged by high unemployment, stagnant wages, and tight credit, are reluctant to spend. Consumer spending accounts for 70 percent of economic activity.

The economy grew only 1.9 percent in the January-March quarter, and some analysts forecast growth was even slower in the April-June period.

Employers have responded by cutting back sharply on hiring. The economy added only 18,000 net jobs in June, the second straight month of dismal job gains. That's far below the average of 215,000 net jobs per month in the February-April period. The unemployment rate rose to 9.2 percent, the highest this year.

Economists have attributed much of the slowdown to temporary factors, such as a spike in gas prices this spring. Manufacturing output also declined after Japan's March 11 earthquake disrupted global supply chains.

Many economists expect growth to pick up later this year as those factors fade. Gas prices, for example, averaged $3.68 a gallon on Wednesday, down from their peak of nearly $4 in early May.

But concerns are also rising that the economy's weakness will persist. Goldman Sachs on Friday cut its estimate for growth in the July-September period to 2.5 percent from an earlier estimate of 3.25 percent. Also last week, JPMorgan reduced its estimate to 2.5 percent from 3 percent.

Goldman Sachs cited extremely weak consumer demand as one factor behind its reduced forecast. Goldman also said in a research note that it is "still unsure about the precise reasons for the slowdown" this year. Like many other economists, Goldman analysts expected the economy to pick up in 2011 after President Obama and Congress agreed at the end of last year to a payroll tax cut and to extend unemployment benefits.

JPMorgan, meanwhile, said companies have built up large stockpiles of goods and, as a result, factories probably won't have to produce as much in the July-September quarter.

Growth of about 2.5 percent is barely enough to reduce the unemployment rate. The economy would need to grow 5 percent for a whole year to bring down the rate by one percentage point.

Some companies are still cutting jobs. Cisco Systems Inc., the world's largest maker of computer-networking gear, said Monday that it is eliminating 6,500 positions, or about 9 percent of its worldwide workforce of 73,000.