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Economy is Making Steady Gains Despite Weak Hiring PDF Print E-mail
Written by PAULWISEMAN AP EconomicsWriter   
Thursday, 16 December 2010 03:32

WASHINGTON -- The U.S. economy is starting to fire on almost every cylinder these days but the one that matters most: Job creation.

Factories are busier. Incomes are rising. Autos are selling. The holiday shopping season is shaping up as the best in four years. Stock prices are surging.

And many analysts are raising their forecasts for the economy's growth. Goldman Sachs, for instance, just revised its gloomy prediction of a two percent increase in gross domestic product in 2011 to 2.7 percent and forecast 3.6 percent growth for 2012.

"The upward momentum has more traction this time," says James O'Sullivan, chief economist at MF Global.

If only every major pillar of the economy were faring so well.

Despite weeks of brighter economic news, employers still aren't hiring freely. The economy added a net total of just 39,000 jobs in November, the government said.

That's far too few even to stabilize the unemployment rate, which rose from 9.6 percent in October to 9.8 percent last month. Unemployment is widely expected to stay above nine percent through next year, in part because of the still-depressed real estate industry.

Job creation ultimately drives the economy, and it remains the most significant weak link. The meager job gains for November confounded economists. They'd expected net job growth to reach 145,000 and for the unemployment rate to stay at 9.6 percent.

Some economists dismissed the November data as a technical fluke, a result of the government's difficulty in adjusting the figures for seasonal factors.They think the number will be revised up later. Others saw the jobs report as a reminder that the economy is still struggling to emerge from an epic financial crisis that choked off credit, stifled spending and escalated a "normal" recession into the worst in 70 years. The depth of the financial crisis means the recovery will proceed more slowly than many had hoped or expected, they say.

"The fits and starts are not surprising," says Jack Kleinhenz, chief economist at the National Retail Federation. "We've had a unique recession and therefore a unique recovery."

In the view of most economists, the direction of the overall economy remains positive - even if its pace feels agonizingly slow. The latest unemployment report was a setback, but likely a temporary one, they say.

"Which are you going to believe," O'Sullivan asks, "one month of payrolls or all the other data?"

Among the encouraging signs:

Consumers, whose spending fuels about 70 percent of the economy, are regaining confidence. The Conference Board's index of consumer confidence rose in November to the highest level since June as consumers expressed more optimism about business conditions and jobs. Consumers are suffering "austerity fatigue," says Scott Minerd of Guggenheim Partners. They're ready to replace old clothes, old appliances, old cars.

Family finances have improved. Personal income surged 0.5 percent in October. That put cash in shoppers' wallets for the holiday shopping season. Households cut their debts to 122 percent of annual disposable income in the April-June quarter, according to Haver Analytics. That was the lowest debt level since the end of 2004.

The holiday shopping season got off to a buoyant start. The National Retail Federation expects holiday retail sales to rise 2.3 percent this year, the best performance since 2006. One reason: Stock prices have surged. A 14 percent rally in the Dow Jones industrial average since late August has made households feel wealthier, Kleinhenz says.

Credit is starting to flow again. Banks have eased credit standards since July, making it easier for businesses to borrow, the Federal Reserve reports. Lending to businesses rose from July through September for the first quarterly increase in two years, according to the Federal Deposit Insurance Corp.

Businesses are reporting solid profits and stockpiling cash. Corporate earnings rose nearly 28 percent in the third quarter from a year earlier, the government says. And companies amassed a record $1.84 trillion in cash as of June 30, according to the Federal Reserve. That was 18 percent more than a year earlier. Eventually, companies will use some of that money to hire and expand,which should help stimulate the economy.

Last Updated on Tuesday, 28 December 2010 00:34