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Slow pace of recovery frustrates the jobless

Published:May 28, 2010, 6:28 AM

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Updated: August 21, 2010, 6:25 AM

WASHINGTON — High unemployment isn’t going away.

The slow pace of economic growth shows that the recovery is too weak to generate enough jobs for 15.3 million unemployed people. Layoffs are contributing to the problem. That’s evident from an elevated number of weekly claims for jobless benefits.

Two government reports Thursday offered new evidence on all of those fronts.

For many Americans, it doesn’t feel much like a recovery.

The unemployed face fierce competition for job openings. Those with jobs are watching their paychecks shrink. A growing number of people are at risk of falling into foreclosure. And only people with the most stellar credit are likely to get a new loan.

“We’re out of recession, but the recovery is not going to bring a whole lot of smiles,” said Joel L. Naroff of Naroff Economic Advisors.

The economy grew at a 3 percent annual rate from January to March, according to a new estimate released by the Commerce Department on Thursday. The new reading, based on more complete information, was slightly weaker than an initial estimate of 3.2 percent a month ago.

Consumers spent less than first estimated. The same goes for business spending on equipment and software. And the nation’s trade deficit was a bigger drag on economic activity. Those factors led to slower growth in the last quarter than initially estimated.

In a separate report, the Labor Department said the number of newly laid-off workers filings claims for unemployment benefits fell to 460,000 last week. But the latest level of claims is actually higher than it was at the start of the year.

By this point in the recovery, economists had hoped that claims would be in the range of 400,000 to 425,000.

This would signal that more robust job growth was on the way.

The economy did add a net 290,000 jobs in April, the most in four years. But much stronger job growth is needed to drive down the 9.9 percent unemployment rate.

Wall Street looked past the disappointing U. S. economic reports and focused on China. Stocks soared after China reassured investors that it doesn’t plan to sell any of the European debt that it holds. The Dow Jones industrial average gained 284.54 to close at 10,258.99.

During normal times, expansion of about 3 percent would be considered healthy for the U. S. economy. But the country is coming out the worst recession since the Great Depression. So growth needs to be stronger — two or three times the current pace — to make a dent in the jobless rate.

Economists say that it takes about 3 percent growth to create enough jobs just to keep up with the population increase. It would have to be about 5 percent for a full year just to drive the unemployment rate down by 1 percentage point.

After the last severe recession in the early 1980s, gross domestic product, or GDP, grew at rates of 7 percent to 9 percent for five straight quarters, and the unemployment rate fell from 10.8 percent to 7.2 percent in 18 months.

Economists don’t see that happening this year. In fact, expansion in the first quarter was slower than the 5.6 percent rate in the final quarter of 2009.

GDP measures the values of all goods and services — from machines to manicures — produced within the United States. It is considered the best measure of U. S. economic health.

The National Association for Business Economics predicts moderate quarterly growth of about 3 percent through the rest of this year. The outlook means that employers won’t feel comfortable about bulking up their work forces.

Employers would need more confidence that sales will rise enough for them to ramp up hiring and raise workers’ pay, analysts say. Shoppers need to be able and willing to borrow more. And Americans need to rebuild more of their household wealth, especially equity lost from home values that tanked during the recession.

Businesses are now faced with new worries about how Europe’s debt crisis will affect sales. Exporters are expecting to see slower sales from Europe, which could constrain hiring.

Housing and commercial real estate are major weak spots for the economy. Builders cut spending in each by double digits in the first quarter.

Christina Romer, head of the White House Council of Economic Advisers, said in Paris on Thursday that it would be a mistake for the United States to rapidly wind down stimulus measures.

While Congress has been debating whether to extend unemployment benefits, economists don’t expect the economy to snap back any time soon.

Nigel Gault, chief U. S. economist at IHS Global Insight, said, “Recovery will be a long, drawn-out slog.”

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