The U.S. Department of Labor recently stated that the number of people continuing to claim unemployment benefits in the United States has fallen to its lowest level in 17 months. However, news from the job market has not brought about a significant improvement in the overall situation. Economists remain concerned that high unemployment, a sluggish housing market, and the European sovereign debt crisis will drag down U.S. economic growth.
U.S. Job Market Remains Weak
Data from the Department of Labor shows that for the week ending May 29, the number of people continuing to claim unemployment benefits in the U.S. was 4.462 million, a decrease of more than 250,000 from the previous week, marking the lowest level since December 2008. Meanwhile, for the week ending June 5, the number of initial jobless claims fell by 30,000 to 456,000, highlighting the weakness of the U.S. job market.
A Reuters report pointed out that the number of unemployment benefit applications has remained higher than analysts' estimates throughout the year, indicating that unemployment may remain high for some time.
“Businesses feel better than they did at the worst of the recession, but they still cannot feel completely comfortable if they stop layoffs. Job growth is needed to achieve income growth to support household spending,” said Andrew Gledhill, an economist at Moody's Analytics.
“The U.S. economy is at best in a moderate or mild recovery,” said Robert Dye, a senior analyst at PNC Financial. “Many parts of the job market are simply not improving rapidly, which seems consistent with the weakness in private sector job growth seen in May.”
While the job market remains under immense pressure, the number of homes repossessed by U.S. lenders in May rose 44% year-on-year to 93,777, setting a new record.
Federal Reserve data shows that the rise in the stock market increased household wealth by $1.1 trillion in the first quarter, but the recent sharp decline in the stock market could cause a reversal in household wealth in the second quarter.
European Debt Threatens U.S. Exports
As the job market struggles to maintain momentum, the moderate decline in initial jobless claims last week, along with a drop in exports in April, supports the view of moderate economic growth.
A report released by the U.S. Department of Commerce shows that due to a decline in exports, the trade deficit rose slightly from $40 billion in March to $40.3 billion in April. The market had previously expected a deficit of $41 billion.
According to Reuters, as the European debt crisis threatens global recovery and U.S. exports, job market growth is crucial to sustaining economic recovery.
Analysts say the decline in April exports is unrelated to the European debt crisis, and they expect the impact of austerity measures taken by some European governments to cut huge budget deficits on U.S. export growth to be very limited.
“The European crisis did not really escalate until May. The decline in April exports likely mainly reflects normal fluctuations in monthly data,” said Paul Dales, an economist at Capital Economics.
Bernanke: Economic Growth Rate to Reach 3%-4%
Federal Reserve Chairman Ben Bernanke recently pointed out at a House Budget Committee hearing that the U.S. economy will continue to grow this year and next, with growth expected to reach 3%-4% this year. The Federal Reserve also stated in its Beige Book that economic activity in all 12 districts continued to improve generally, although many districts reported moderate economic growth.
It appears that the economic recovery has completed an important shift, from being supported by government spending to being boosted by stronger private demand. Continued growth in consumer spending and business investment will provide support to the economy that will offset the impact of the government's withdrawal of stimulus policies.
He also said that although the U.S. unemployment rate remains too high, there have recently been signs that the situation in the job market is improving. However, the current pace of economic growth will not be enough to recover the 8.5 million jobs lost between 2008 and 2009 in the short term.
In addition, Bernanke reiterated that the residential and commercial real estate markets have slowed the pace of the U.S. economy's emergence from its worst recession since the 1930s.
Economists Optimistic About Recovery Prospects
Surveys suggest that despite growing market concerns about Europe and the employment situation, the economy will still see a steady and gradual recovery.
The 53 economists surveyed monthly by The Wall Street Journal believe that despite the recent turmoil in European debt markets, the U.S. economy will maintain slow but steady growth through the middle of next year. However, the situation in Europe and the vitality of the U.S. job market have created concerns for their forecasts. They expect the U.S. economy to grow by about 3% in the second half of this year and to maintain that growth rate through next year, which means job opportunities will gradually increase. They believe the U.S. will add about 2.2 million jobs over the next 12 months.
Due to the risk of the European debt crisis expanding, along with other uncertainties, economists have extended their original interest rate hike forecasts, believing that the Federal Reserve (Fed) will not be able to raise rates until February of next year. A month ago, these economists expected the Fed to raise rates by the end of this year.
Among the economists surveyed, 24 believe that the biggest risk the U.S. economy faces in the second half of the year may be the chain reaction triggered by the European debt crisis, namely that after the outbreak of risk in Greece, it continued to expand, leading to questions about the euro exchange rate and the strength of European banks.
Another 11 economists believe the biggest risk comes from disappointing U.S. job growth. The pace of job growth is a key factor in the speed of the U.S. economic recovery.
In addition, economists said that the factor that could allow economic growth in the second half of the year to exceed their expectations is an increase in corporate hiring.