June 11, 2009
The number of people receiving unemployment benefits has set another record, a development likely to weigh on consumer spending and slow the economy’s recovery.
While retail sales rose in May, the increase resulted largely from a spike in gasoline prices and higher auto sales, according to a report from the Commerce Department. Overall, the retail report Thursday showed consumers remain reluctant to spend, economists said.
“The jobs picture continues to be one of the most significant challenges to the economy,” said Dean Curnutt, president of Macro Risk Advisors, a financial strategy firm. “It’s very difficult to be bullish on consumer spending when you’re looking at unemployment rates that are so high.”
The number of people continuing to claim benefits exceeded 6.8 million in the week ending May 30, the Labor Department said Thursday. That was the 19th straight weekly record, after a drop last week was revised to an increase.
And that doesn’t include about 2.4 million people receiving benefits through federal and state extended programs, which can add up to 53 weeks to the 26 weeks provided by most states. That means about 8.5 million people received unemployment insurance in the week ending May 23, the latest data available, triple the total of a year ago.
The unemployment rate jumped to 9.4 percent in May, a 25-year high, as employers cut 345,000 jobs. Some economists project the rate could near 11 percent by the middle of next year.
More encouraging was a drop in initial jobless claims to a seasonally-adjusted 601,000 last week, which was below analysts’ expectations and the lowest level since January.
New jobless claims are a measure of the pace of layoffs and are seen as a timely, if volatile, indicator of the economy’s health. The huge increase in the unemployment benefit rolls is a sign that even as layoffs slow, companies remain reluctant to hire.
The weak job market, along with dwindling home values and falling stock portfolios, likely will restrain consumer spending for months, economists said.
That’s a big reason why many analysts and the Federal Reserve expect any economic recovery later this year to be slow.
Consumer spending powers about 70 percent of the economy and has been key to past recoveries. When Americans sharply reversed their free-spending ways last year, the economy plunged into a steep recession, which is now the longest since World War II.
The Fed said Thursday that American households lost $1.33 trillion, or 2.6 percent, of their wealth in the first three months of the year. That caused household net worth to drop to the lowest level since the third quarter of 2004.
Tim Groves, a 39-year-old attorney in Providence, R.I., said his family’s spending has increased slightly from a few months ago but only because his wife did not lose some classes she teaches as they had feared.
“We’ve loosened up but that doesn’t necessarily mean we’re spending more,” Groves said. “We were cutting back a fair amount just preparing for that. We’re trying to keep the belt tight.”
Retail sales did rise 0.5 percent in May, the government said, the first increase in three months. But excluding autos, gas and other volatile categories, so-called “core” retail sales were flat compared with April.
Higher gas prices likely will restrain consumer spending in the next few months, said Paul Dales, U.S. economist at Capital Economics in Toronto. He estimates gas prices rose 10 percent in May and have jumped another 15 percent so far this month.
Still, Wall Street welcomed the drop in new jobless claims and growth in retail sales. The Dow Jones industrial average added nearly 32 points to 8,770.92, and broader indices also rose.
Many analysts expect layoffs to worsen the housing slump, as unemployment, rather than risky mortgages, becomes the main reason borrowers default on their loans. That will likely keep foreclosures elevated into 2010.
Foreclosure filings fell 6 percent in May from April, RealtyTrac Inc. said Thursday. More than 321,000 households received at least one foreclosure-related notice last month, 18 percent more than a year earlier.
Despite the drop from April, it was the third-highest monthly rate since the Irvine, Calif.-based foreclosure listing firm began its report in January 2005.
Also Thursday, the Commerce Department said businesses cut inventories 1.1 percent in April as they struggle to get stockpiles more in line with falling sales. Inventories have fallen for eight straight months, the longest stretch since there were 15 consecutive declines in 2001-2002, a period that covered the last recession. For further information, visit: http://www.google.com/hostednews/ap/article/ALeqM5gNiyJ905Ho0Ur96V2TQhsBX19lGwD98OMFS81