High unemployment is not going away in the US — not as long as the economy grows as slowly as it did in the April-June quarter.
Weak consumer spending held growth at an annual rate of just 1.5 percent, even less than the first quarter is 2 percent rate and few expect the economy to accelerate in the second half of the year as Europe is financial woes and a US budget crisis restrain businesses and consumers.
RISKS TO ECONOMY
The growth estimate on Friday from the Commerce Department suggested that the US economy could be at risk of stalling three years after the recession ended. Economists generally say even 2 percent annual growth would add only about 90,000 jobs a month. That is too few to keep up with population growth and drive down the rate of unemployment, which is stuck at 8.2 percent.
Annual economic growth of 2.5 to 3 percent is needed to create enough jobs just to keep up with an expanding workforce. Healthier growth of 4 percent or more is needed to reduce the unemployment rate significantly.
The 1.5 percent growth rate in the second quarter was the weakest since GDP grew at a 1.3 percent rate in the July-September quarter last year and it shows the recovery is gaining no momentum.
The Commerce Department also revised its growth estimates for the past three years. Those revisions showed that the economy contracted 3.1 percent in 2009, slightly less than the 3.5 percent previously reported. Growth in 2010 was put at 2.4 percent, down from 3 percent, with growth last year at 1.8 percent instead of 1.7 percent.
“The main takeaway from today’s report, the specifics aside, is that the US economy is barely growing,” said Dan Greenhaus, chief economic strategist at BTIG LLC. “It is no wonder the unemployment rate cannot move lower.”
Sal Guatieri, senior economist at BMO Capital Markets, expects the unemployment rate to end this year — and next year — at 8.3 percent.
Guateieri said that he foresees no decline in unemployment because of how tepid he thinks economic growth will remain: 2.2 percent for all of this year and 2 percent for the next.
The lackluster economy is raising pressure on US President Barack Obama in his re-election battle with Mitt Romney, the presumptive Republican presidential nominee, but few think the US Federal Reserve, the White House or Congress can or will do anything soon that might rejuvenate the economy quickly. Many lawmakers, for example, refuse to increase federal spending in light of historically large budget deficits.
No US president since Franklin D. Roosevelt, in the depths of the Great Depression in the 1930s, has been re-elected when the rate of unemployment exceeded 8 percent. Former presidents Jimmy Carter and George H.W. Bush were both ousted when unemployment was well below 8 percent.
Polls show that management of the economy is the only issue on which those surveyed express more confidence in Romney, with his business background, than Obama.
Glenn Hubbard, economic adviser for Romney, said Friday’s report largely matched economists’ expectations.
“Those expectations themselves and the report itself were actually quite disappointing,” Hubbard said. “At that pattern, the economy simply will never return to full employment.”