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By CHRISTOPHER S. RUGABER, AP Economics Writer Christopher S. Rugaber, Ap Economics Writer   – 1 hr 49 mins ago

WASHINGTON – New claims for unemployment insurance fell more than expected last week, evidence the job market is slowly healing as the economy recovers.

Still, many analysts worry the nation could be in for a "jobless recovery" as the unemployment rate rises despite some overall economic growth.

The Labor Department said Thursday that first-time claims for jobless benefits dropped to a seasonally adjusted 502,000 from an upwardly revised 514,000 the previous week. That's the fewest claims since the week ending Jan. 3, and below economists' estimates.

The four-week average, which smooths fluctuations, dropped to 519,750, the lowest in almost a year. It has fallen by more than 20 percent since its peak in the spring.

Economists closely watch initial claims as a gauge of the pace of layoffs. But claims also can provide a signal about the willingness of companies to hire, because laid-off workers able to find jobs are less likely to request benefits.

Many analysts estimate that claims must fall to roughly 450,000 to signal that the economy is adding jobs.

The number of people continuing to claim benefits dropped by 139,000 to 5.6 million, also below analysts' estimates. The figures on continuing claims lag initial claims by a week.

But millions of unemployed Americans have used up the regular 26 weeks of benefits typically provided by states and are receiving extended benefits for up to 73 additional weeks, paid for by the federal government. Congress added 14 to 20 weeks to the extended program last week, the fourth extension since the recession began and the longest total extension on record.

About 4.1 million people were receiving extended benefits in the week ended Oct. 24, little changed from the previous week.

The unemployment rate jumped to 10.2 percent in October, the Labor Department said last week, as employers cut a net total of 190,000 jobs. That's the highest jobless rate in 26 years.

But the economy grew at a 3.5 percent annual rate in the July-September quarter after a record four straight quarterly drops. The disparity between the unemployment rate and economic growth figure has raised fears among many economists that the nation's economy could be in for a "jobless recovery."

More job cuts were announced this week. Adobe Systems Inc., the maker of Photoshop, Flash and Acrobat software products, said it will cut about 680 jobs, or 9 percent of its employees. And internet company AOL LLC, which will soon be spun off from parent Time Warner Inc., laid off about 100 full-time employees, reducing its work force to 6,900.

Among the states, Wisconsin had the highest number of claims, with 1,501, which it attributed to more layoffs in the construction, public administration and manufacturing industries. Illinois, Michigan, Puerto Rico and Texas had the next largest increases. The state data lag initial claims by one week.

California had the biggest drop in claims, with 6,752, which it attributed to fewer layoffs in the construction and service industries. Florida, Georgia, New York and North Carolina had the next largest decreases.

U.S. business economists raise 2010 growth outlook
Mon Nov 23, 2009 12:32am EST

WASHINGTON (Reuters) - A group of U.S. business economists boosted their forecast for economic growth over the next year, but said the jobless rate will remain stubbornly high, a survey released on Monday showed.

The National Association for Business Economists predicted real growth in gross domestic product for 2010 would be 2.9 percent, up from its October forecast for 2.6 percent growth.

"Real GDP growth should also be enough to recover losses from the recession and return output to an all-time high by the end of 2010," the business group said in a statement.

For all of 2009, the business group predicted the economy would contract by 2.4 percent, slightly improved from its October forecast for contraction of 2.5 percent.

The survey reflected a poll of 48 NABE members from October 24-November 5.

The group saw the jobless rate holding at an average 10 percent from the fourth quarter of 2009 to the second quarter of 2010 before dropping to 9.6 percent by the end of 2010.

"While the recovery has been jobless so far, that should soon change," said NABE President Lynn Reaser. "Within the next few months, companies should be adding instead of cutting jobs."

Employers have shed 7.3 million jobs since December 2007 when the recession began; the jobless rate last month jumped to 10.2 percent, a 26-1/2 year high.

The survey found that most of the group's economists were mostly optimistic that the Federal Reserve's polices will not lead to higher inflation, NABE said.

The panel expects the core personal consumption expenditures deflator to rise 1.5 percent in 2010, following an identical gain in 2009.

Inflation will remain low mostly because of substantial labor slack and further productivity gains will reduce labor costs, the business group said.

Government spending will likely grow at a 2 percent pace in 2010 because of fiscal stress at the state and local levels, the survey showed.

The personal saving rate is expected to average 4 percent in 2010, the highest rate since 1998, the group said.

U.S. recovery gains strength
Jobless claims drop to 452,000, durable goods rise
Daniel Wagner

Washington — The Associated Press Published on Thursday, Dec. 24, 2009 8:46AM EST Last updated on Thursday, Dec. 24, 2009 5:47PM EST

A fitful economic recovery is drawing strength from a stabilizing job market and signs that manufacturing will contribute to the rebound.

The latest sign was a government report Thursday that the number of newly laid-off workers filing claims for unemployment benefits fell more than expected last week. And the four-week average for claims, which smooths out fluctuations, fell for the 16th straight week, to its lowest point since September 2008, when the financial crisis hit with full force.

Further evidence of a gradually healing economy was a report that orders to U.S. factories for big-ticket durable goods rose in November. The overall increase was less than expected. But excluding the volatile transportation category, the gains were twice what economists had forecast.

The Labor Department said the number of new jobless claims fell to a 452,000 last week, down 28,000 from the previous week, on a seasonally adjusted basis. That's a better performance than the decline to 470,000 that economists had expected.

And the four-week average for claims, which smooths out fluctuations, fell to 465,250 — the 16th straight weekly decline.

Unemployment claims have been falling unevenly since summer. That improvement is seen as a sign that jobs cuts are slowing and hiring could pick up early next year. The fall in weekly claims of 28,000 last week, which followed two smaller weekly increases, shows that the halting improvement continues.

But the Labor Department warned that seasonal employment from holidays and other variables in the calendar made last week a difficult one to seasonally adjust. The actual number of new claims was higher than the previous week, but fewer than expected. The process of adjusting for seasonal variation reduced the number.

Economists monitor jobless claims as a gauge of the pace of layoffs. Analysts say initial claims need to fall to about 425,000 for several weeks to signal the economy is actually beginning to add jobs.

The government said the number of people continuing to receive regular jobless benefits fell by 127,000 to 5.08 million for the week ending Dec. 12. That figure does not include millions of people who have used up the 26 weeks of benefits typically provided by states and are now receiving extended benefits for up to 73 additional weeks, paid for by the federal government.

The number of people receiving extended benefits jumped to 4.37 million for the week ending Dec. 5, an increase of 141,807 from the previous week. That big rise slows that the problem of high unemployment persists despite a decrease in layoffs.

It also reflects the fact that 38 states are now processing claims for the extension of benefits that Congress approved last month.

The economy grew at a 2.2 per cent annual rate in the July-September quarter, the first growth in the gross domestic product after a record four straight quarters of shrinking GDP. A string of more positive reports is causing analysts to revise up their forecasts for growth in the current quarter to 3 per cent or slightly better.

But unless unemployment starts to decline steadily, consumer spending, which accounts for 70 per cent of economic activity, could falter. That could jeopardize the fragile recovery from the nation's longest recession since the 1930s.

The jobless rate dipped in November to 10 per cent, down from a 26-year high of 10.2 per cent in October. Some analysts fear that unemployment will resume rising in coming months and won't peak until hitting 10.5 per cent next summer. Still, the November jobless report showed that businesses slashed their payrolls by just 11,000 jobs on net in November, the smallest decrease since the recession began two years ago.

Federal Reserve officials last week ended their final meeting of the year with a decision to hold interest rates at “exceptionally low levels” for an extended period. The Fed has kept its key federal funds rate at a record low near zero per cent for the past year. Many economists don't expect any increases until the unemployment rate begins to decline consistently.

In their assessment of the economy, Fed officials noted that economic activity was continuing to pick up and the pace of layoffs has been slowing.

There were 19 states with decreases of more than 1,000 claims for the week ending Dec. 12 led by North Carolina, which a 14,374 decline, which it attributed in part to fewer layoffs in the textile, construction and service industries. Pennsylvania, New York, Georgia, Wisconsin and California also had at least 10,000 fewer new claims, and all except California mentioned fewer construction layoffs.

The previous week, only Kansas and Kentucky had declines of more than 1,000 new claims.

The two areas with increases of more than 1,000 claims for the week ending Dec. 12 were Louisiana and Puerto Rico. The previous week, 29 states had increases of more than 1,000 claims.

California payrolls shrank by 38,800 jobs last month, while the unemployment rate rose to 12.4% from 12.3% in November.
The state has the fifth-highest unemployment rate in the nation, after Michigan, Nevada, Rhode Island and South Carolina, and
economists expect it to lag as the construction and retail sectors continue to struggle. Over the last two years, California has lost
more than 1 million jobs. (L.A. Times)

And what is one of the few US-made export sectors where there is lots of foreign demand?
War materials (aka "Defence Industries").
+++++++++++++++++++++++++++++++
REUTERS  Obama proposes his first arms sales to Taiwan [KCRKQYT]

WASHINGTON, Jan 29 (Reuters) - The Obama administration was
set to notify Congress on Friday of proposed U.S. arms sales to
Taiwan for its first time, a roughly $6 billion package bound
to anger Beijing and add to rising U.S.-China strains.

U.S. officials said the Pentagon's Defense Security
Cooperation Agency was proposing to sell Taiwan UH-60 Black
Hawk helicopters, Patriot "Advanced Capability" missile
defenses known as PAC-3 and a command and control program
operations deal.

China regards self-ruled, democratic Taiwan as a wayward
offshore province subject to unification with the communist-run
mainland, by force if necessary.

29Jan10 17:27 GMT

I presume that the projected growth in the US deficit as a % of GDP includes non-renewal of the Bush tax cuts on dividends and capital gains, which expire at year-end. Canada has a kind of Federal value-added tax, called the GST. We also have a Provincial Sales Tax, called the PST and in some Provinces they are harmonized and called the HST. Where I live in Ontario, these taxes add 13% to the price you pay, at retail. It is an easy way to collect a lot of tax revenue.

Greece illustrates the danger of continuing to spend money unfettered by whether you actually have the income to afford it...and the resistance to changing the culture, which expects govt. to do certain things, whether they are paying taxes to fund the activity, or not. Can the largest debtor in the World (that's the US, not Greece) continue to fund all of its domestic programs, foreign aid, the largest military establishment in history, a couple of wars, medical care, retirement programs, etc. without raising taxes...or will the govt. prioritize and cut the programs that will have those that benefit protest?
++++++++++++++++++++++++++++++++++++++++++++
What’s Sustainable About This Budget?

By N. GREGORY MANKIW
Published: February 13, 2010

PRESIDENT OBAMA’S 2011 budget, released this month, bears the title “A New Era of Responsibility.”

“Let’s invest in our people without leaving them a mountain of debt,” the president said in his State of the Union address. “Let’s meet our responsibility to the citizens who sent us here.”

Noble aspirations, indeed. But do the numbers inside the document support the rhetoric surrounding it?

To answer that question, let’s start with the definition of fiscal responsibility. What should the budget numbers look like before one gives them the Good Economist’s Seal of Approval?

It may be tempting to assume that a balanced budget is the natural benchmark. Certainly, the Obama budget comes nowhere close to achieving that goal. But there are reasons to think that this standard is far too strict.

Sometimes, a budget deficit, even a large one, is called for. War and recession are the two classic cases. Wars lead to temporary surges in government spending, and recessions lead to temporary declines in government revenue. It makes sense for the government to borrow to make it through these tough times.

President Obama, like his immediate predecessor, is dealing with both war and recession. A transitory surge in the government’s budget deficit is natural under these circumstances and need not be a cause for alarm.

Moreover, even in the long run, a balanced budget is too strict a standard. Because of technological progress, population growth and inflation, the nation’s income and tax base grows over time. If the government’s debts grow at or below that pace, servicing the debt will not become a major problem. That means the government can run budget deficits in perpetuity, as long as they are not too large.

Recent history illustrates this principle. From 2005 to 2007, before the recession and financial crisis, the federal government ran budget deficits, but they averaged less than 2 percent of gross domestic product. Because this borrowing was moderate in magnitude and the economy was growing at about its normal rate, the federal debt held by the public fell from 36.8 percent of gross domestic product at the end of the 2004 fiscal year to 36.2 percent three years later.

That is, despite substantial wartime spending during this period, budget deficits were small enough to keep the debt-to-G.D.P. ratio under control.

The troubling feature of Mr. Obama’s budget is that it fails to return the federal government to manageable budget deficits, even as the wars wind down and the economy recovers from the recession. According to the administration’s own numbers, the budget deficit under the president’s proposed policies will never fall below 3.6 percent of G.D.P. By 2020, the end of the planning horizon, it will be 4.2 percent and rising.

As a result, the government’s debts will grow faster than the economy. The administration projects that the debt-to-G.D.P. ratio will rise in each of the next 10 years. By 2020, the government’s debts will equal 77.2 percent of G.D.P. This level of indebtedness has not been seen since 1950, in the aftermath of the borrowing to finance World War II.

Making matters worse, these bleak budget projections are based on relatively optimistic economic assumptions. The administration forecasts economic growth of 3.0 percent from the fourth quarter of 2009 to the fourth quarter of 2010, followed by 4.3 percent the next year. By contrast, the Congressional Budget Office predicts growth of 2.1 percent and 2.4 percent for these two years. Lower growth would mean less tax revenue, larger budget deficits and a more rapidly increasing debt-to-G.D.P. ratio.

The president seems to understand that the fiscal plan presented in his budget is not sustainable and, as such, is not really a plan at all. That is why the budget prominently calls for a fiscal commission that will be charged with “identifying policies to improve the fiscal situation.” The goal, the budget says, is “to stabilize the debt-to-G.D.P. ratio at an acceptable level once the economy recovers.”

In other words, President Obama’s long-term fiscal strategy is to appoint a commission to figure out a long-term fiscal strategy.

It is impossible to say what such a commission will propose, and voters probably won’t know until after the midterm elections this year. But Nancy Pelosi, the House speaker, gave a hint in an interview last October when she said a value-added tax was “on the table.”

A value-added tax is like a sales tax, but rather than being collected entirely at the retail store, it is collected in stages along the chain of production. Many European countries use it, and it is one of the more efficient ways to raise revenue. So efficient, in fact, that some conservatives fear that it would too easily fuel the growth of government.

YET despite its efficiency compared with other taxes, a VAT does not offer a free lunch. It would raise consumer prices, lower real wages, discourage work and depress economic growth. It would also break President Obama’s pledge not to raises taxes on the middle class.

But unless the president revises his spending plans substantially, he will have no choice but to find some major source of government revenue. Ms. Pelosi’s suggestion of a VAT may be the best of a bunch of bad alternatives. Unfortunately, in this new era of responsibility, the president is not ready to face up to the long-term fiscal challenge.

N. Gregory Mankiw is a professor of economics at Harvard. He was an adviser to President George W. Bush.

That is Federal DEBT as a percentage of GDP not the Federal deficit. That is, of course, bad enough.  :shots:

REUTERS  Europe shares up after U.S. data; banks, miners gain [KDYBZMS]

* FTSEurofirst 300 index up 1.1 percent

* U.S. data paints mixed picture for economy

* Banks in demand; Lloyds slips after results


By Harpreet Bhal

LONDON, Feb 26 (Reuters) - European shares closed higher on
Friday, as upbeat economic growth numbers from the United States
outweighed weaker consumer sentiment and housing data, with
banks strong and miners higher on firm metals prices.

The pan-European FTSEurofirst 300 <.FTEU3> index of top
shares closed up 1.1 percent at 1,007.51 points. The index lost
0.5 percent in February.

The U.S. economy grew faster than initially thought in the
fourth quarter, at 5.9 percent, as businesses drew down
inventories at a much slower pace and boosted investment.
[ID:nN25113351]

In a mixed picture for the economy, U.S. consumer sentiment
was weaker in February, the Thomson Reuters/University of
Michigan's Surveys of Consumers showed [ID:nN26171094], while
sales of previously owned homes unexpectedly plunged in January.
[ID:nN26246086]

"The housing data was pretty shocking and the markets came
off but they came back again and we have seen some buying back
from the lows," said Joshua Raymond, strategist at City Index.

  A report that Germany may consider buying Greek bonds as an
emergency measure to help the debt-ridden nation soothed
investors' worries about sovereign default in the euro zone, and
helped U.S. stocks to push higher.

Banks added the most points to the index. Barclays <BARC.L>,
HSBC <HSBA.L>, Societe Generale <SOGN.PA>, BNP Paribas <BNPP.PA>
and Deutsche Bank <DBKGn.DE> rose 1.4 to 3.2 percent.

However, Lloyds Banking Group <LLOY.L> fell 4.4 percent
after its results, with traders saying its loan-to-deposit ratio
was too high, and its impairment guidance was not as bullish as
some had expected. [ID:nLDE61O2G9]

Macroeconomic data from Britain also lent some support to
investor sentiment, after economic growth in the fourth quarter
was revised up more than expected as new figures showed the
service sector grew five times faster than initially estimated.
[ID:nONS004824]

"There is also a big focus towards the data due next week
like the Bank of England rate decision and (U.S.) non-farm
payrolls ... and investors remain particularly sensitive to
macroeconomic data," Raymond said.

Miners were in favour, supported by firm metals prices.
Anglo American <AAL.L>, Antofagasta <ANTO.L>, BHP Billiton
<BLT.L>, Rio Tinto <RIO.L> and Xstrata <XTA.L> were up 2.4 to
3.6 percent.

Across Europe, Britain's FTSE 100 <.FTSE>, Germany's DAX
<.GDAXI> and France's CAC 40 <.FCHI> rose 1.2 to 1.9 percent.



SEADRILL RISES

Upbeat corporate results helped drive individual stocks
higher. Seadrill <SDRL.OL> rose 9.2 percent after the Norwegian
oil drilling contractor reported a bigger-than-expected rise in
quarterly operating profit. [ID:nLDE61N1DD]

Building materials group Saint Gobain <SGOB.PA> climbed 7.9
percent as the company said it expected a strong rise in 2010
operating profit. [ID:nLDE61N1XR]

On the downside, Spanish wind turbine maker Gamesa <GAM.MC>
shares fell 2.8 percent after it gave 2010 results forecasts
dubbed as "disappointing" by analysts after close of market
trade on Thursday [ID:nLDE61O2KP].

Germany's largest drugmaker Bayer <BAYGn.DE> lost 1.4
percent after it forecast 2010 core profit slightly below market
expectations as higher feedstock costs held back recovery at its
plastics division.

26Feb10 17:33 GMT

Services sector grows at fastest clip since '06
Wanfeng Zhou and Steven C. Johnson
NEW YORK
Mon Apr 5, 2010 3:07pm EDT

NEW YORK (Reuters) - The services sector grew at its fastest pace in nearly four years in March and future home sales unexpectedly rose in February bolstering hopes for sustainable economic recovery and job growth.

The vast U.S. services sector, which has been lagging other areas of the economy, accounts for some two-thirds of U.S. economic activity. Analysts say growth in this sector bodes well for consumer spending and overall employment.

The positive news on U.S. service and housing activity, coupled with last Friday's solid jobs report raised expectations the Federal Reserve will tighten monetary policy sooner rather than later.

"The improvements in the U.S. economy should give the Fed the nudge that they need to unwind emergency measures and tighten monetary policy more quickly," said Kathy Lien, director of currency research at GFT in New York. "The milestones the service sector and housing market reached reflect not only the strength of the recovery, but also the rosier prospects that lie ahead."

The Institute for Supply Management said its service index grew in March for a third straight month, jumping to 55.4, its strongest reading since May 2006. That was up from February's 53.0 reading and above economists' forecasts for 54.0 for March.

A reading above 50 indicates expansion in the sector.

"The service sector lags other areas of the economy and the March data provided another optimistic indication that the recovery is gaining traction," said Joseph Brusuelas, chief economist at Brusuelas Analytics in Stamford, Connecticut.

U.S. interest rates are set to stay near zero for the time being, though the U.S. Federal Reserve stands ready to take action if signs of inflation begin to mount, top central bank officials said earlier this month.

U.S. benchmark Treasury yields touched 4 percent for the first time in 10 months on Monday amid expectations the Federal Reserve will pursue a less accommodative monetary policy to forestall a pickup in inflation.

U.S. stock indexes rose and the dollar pared losses against the yen after the data, which bolstered hopes that the economy is recovering swiftly from a deep recession.

The ISM non-manufacturing index also showed its employment component rose slightly in March, while new orders jumped as well.

"The data confirms the increase in service sector employment in the March non-farm payroll report and supports our call of a rate of growth in the first quarter of 3.0 percent," Brusuelas said.

The Conference Board, a private research group, said the U.S. job market strengthened for a seventh straight month in March, with fewer Americans having trouble finding work.

Economists say job growth is essential for continued economic expansion, particularly as government stimulus spending starts to fade. And despite improvements in the labor market, the jobless rate remained at 9.7 percent in March for a third straight month.

A separate report on Monday from the National Association of Realtors showed contracts for pending sales of previously owned homes unexpectedly rose in February.

The Realtors said its Pending Home Sales Index, based on contracts signed in February, rose 8.2 percent to 97.6 from a downwardly revised 90.2 in January.

Analysts polled by Reuters had forecast pending home sales, which lead existing home sales by one to two months, would remain essentially unchanged in February.

Reports last week showed the U.S. manufacturing sector grew for an eighth straight month in March, expanding at its fastest pace since July 2004, while U.S. employers added jobs last month at the fastest rate in three years.

"Looks like the good news continues," said Alan Gayle, senior investment strategist at Ridgeworth Investments in Richmond, Virginia. "All this suggests that the economic recovery is spilling over into job creation."

(Reuters) - Manufacturing registered its fastest pace of growth in nearly six years in April while data on construction and consumer spending pointed to further strength in the economy.

Consumer spending, which accounts for over two-thirds of economic activity, rose in March for a sixth straight month, the Commerce Department reported on Monday.

The Institute for Supply Management (ISM) said its index of national manufacturing activity rose to 60.4 in April from 59.6 in March, beating Reuters' median forecast for a reading of 60. A rise in the employment component showed employers were more confident about hiring.

"This is a strong report on the economy, indicating that the production recovery continues to move ahead at a very good pace," said Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Massachusetts.

On Wall Street, U.S. stock indexes rose more than 1 percent apiece and the dollar strengthened against both the yen and euro, helped by the day's economic data. Prices for safe-haven U.S. Treasury debt slipped.

Markets are watching the numbers on the world's largest economy closely for signs of the strength in its recovery, and especially for clues about hiring prospects.

Despite the positive numbers, a top White House economic aide said more effort was needed to help the economy and warned a pull back in government aid could harm a fragile recovery.

Public opinion polls show many voters growing concerned about exploding federal budget deficits after the government's emergency spending to counter the recession.

Consumer spending rose 0.6 percent after rising by an upwardly revised 0.5 percent in February, previously reported as a 0.3 percent gain, according to the Commerce Department report. Analysts had expected an increase of 0.6 percent in March.

The data preceded Friday's much-awaited U.S. April jobs report, expected to show an increase in employment gains from the prior month.

In another report from the Commerce Department, U.S. construction spending also rose unexpectedly in March to post its first advance since October. [ID:nN30128894] The rise of 0.2 percent was the largest gain since October and followed a revised 2.1 percent drop in February, previously reported as a 1.3 percent fall.

U.S. auto sales, meanwhile, rose in April, with Ford Motor Co (F.N) and Hyundai Motor Co (005390.KS) leading the way.

CONSUMER LEADERSHIP

The employment component of the ISM report rose to its highest since January 2005.

"It says manufacturers are doing some hiring. Obviously, there is some job creation," Norbert Ore, chairman of ISM's manufacturing business survey committee, told reporters during a conference call.

The factory data was in line with data from overseas. Factories in the Asia-Pacific region increased production last month, while euro zone manufacturer activity hit a 46-month high.

U.S. growth data on Friday showed the economy expanded steadily in the first quarter as consumers increased spending at the fastest pace in three years. ID:N29103242

Still, analysts worry that an unemployment rate close to 10 percent and sluggish income growth could constrain spending in coming months.

According to a Reuters survey, nonfarm payrolls likely increased by 200,000 in April, adding to the prior month's 162,000 gain. The unemployment rate, however, is expected to remain unchanged at 9.7 percent for a fourth straight month.

Monday's income report showed the U.S. savings rate dropped to 2.7 percent, the lowest level since September 2008.

The index, which is a key inflation gauge monitored by the Federal Reserve, increased 1.3 percent in February.

Separately, U.S. small- and medium-sized businesses are increasing borrowing and keeping up with repayments on existing loans, according to PayNet Inc.

The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing, rose 4 percent in March, the first year-on-year gain since October 2007, two months before the recession began.

As businesses borrow more, they are seen as likely to hire more people, said Bill Phelan, Paynet's president and founder.

The Markets were expecting better, apparently.
+++++++++++++++++++++++++
(Reuters) - U.S. consumer spending rose moderately in May, even as savings touched the highest level in eight months, indicating a tepid economic recovery was still intact.

Small Business

The data on Monday helped to allay fears that consumers, key to reviving the economy following the longest and deepest slump in 70 years, were retreating.

"Consumers are spending at a reasonably solid pace, but are still conservative. With two months of the (second) quarter in hand, consumers are at roughly the same pace of spending growth as we saw in the first quarter," said Julia Coronado, an economist at BNP Paribas in New York.

Spending increased 0.2 percent after going flat in April, the Commerce Department said. That was a touch above market expectations for 0.1 percent. Adjusted for inflation, spending was up 0.3 percent.

Investors, however, continued to worry about the recovery's strength. A string of recent data, including a report showing retail sales had slumped in May, implied it was slackening.

Wall Street stocks ended flat to modestly lower after a volatile session. Prices for U.S. government bonds soared, driving benchmark yields -- which move inversely to prices -- to one-year lows.

The U.S. dollar strengthened against a basket of currencies as potential funding tensions in Europe weighed on the euro.

The government on Friday said consumer spending, which normally accounts for 70 percent of U.S. economic activity, rose at a 3 percent pace in the January-March quarter -- slower than the official estimate of 3.5 percent in May.

That contributed to the government's gauge of first-quarter growth being trimmed to an annual rate of 2.7 percent from 3 percent.

HIGH UNEMPLOYMENT

Despite the recent batch of weak data, Federal Reserve officials on Monday saw the recovery remaining on course.

"The expansion is on track," Jeffrey Lacker, President of the Richmond Federal Reserve Bank told Reuters in an interview.

"Consumer spending continues to expand at a reasonably strong pace given the circumstances. We continue to see strength in business spending on equipment and software. Those are going to bring the economy forward," he said.

Households' spending capacity is being restrained by stubbornly high unemployment, but analysts believe it will remain on a solid footing through the year as the labor market steadily improves.

Last month, an increase in jobs and longer working hours helped lift incomes. Incomes rose 0.4 percent after gaining 0.5 percent in April, the Commerce Department said.

Adjusted for inflation and taxes, incomes climbed 0.5 percent following a 0.6 percent increase the prior month.

"The underlying recovery in employment, which we think continued in June, and hours worked is boosting households' finances," said Paul Dales, a U.S. economist at Capital Economics in Toronto.

Payrolls increased 431,000 in May, boosted by the hiring of 411,000 temporary workers to complete the 2010 Census.

According to a Reuters survey, employment probably fell 110,000 this month as more than half of the census workers recruited in May were laid off.

But private hiring, considered a better gauge of labor market health, likely picked up after unexpectedly slowing in May. This should help to sustain spending and support the fragile economic recovery, analysts say.

With incomes outpacing spending, the savings rate rose to 4 percent last month from 3.8 percent in April. Savings increased to an annualized $454.3 billion, the highest level since September.

The report on spending showed inflation pressures remain muted. The personal consumption expenditures price index was flat for a second month in a row, while the core price index, which excludes food and energy costs, rose 0.2 percent.

The core price index, closely eyed by officials at the Fed, was up 1.3 percent in the 12 months to May. Most officials at the central bank would prefer to see it closer to 2 percent.

The Fed last week left overnight lending rates in a zero to 0.25 percent range and renewed its commitment to an ultra low interest rate policy, saying inflation was "likely to be subdued for some time."

Separately, a measure of national economic activity slipped last month, but remained above levels historically linked to a mature economic recovery following a recession.

The Chicago Federal Reserve Bank said its national activity index fell to 0.21 from 0.25 in April. The three-month moving average indicated limited inflationary pressure over the coming year, the Chicago Fed said.

By JEANNINE AVERSA, AP Economics Writer Jeannine Aversa, Ap Economics Writer   – 5 mins ago

WASHINGTON – The recovery lost momentum in the spring as growth slowed to a 2.4 percent pace, its most sluggish showing in nearly a year and too weak to drive down unemployment.

Consumers spent less, companies slowed their restocking of shelves and the nation's trade deficit dragged more on the economy in the April-to-June quarter. In a separate report, the Commerce Department said the recession was deeper than previously estimated.

Together, the reports raise doubts about whether employers will hire enough and consumers will spend enough to invigorate the economy. As unemployment remains near double digits, Congress could feel pressure to pass more stimulus measures to speed the recovery. So far, Republicans and some Democrats have blocked additional spending because of their concerns about the size of the deficit.

Investors reacted to the report with disappointment. Stock futures fell in the hour before the markets opened.

The Commerce Department's report released Friday also showed that the economy grew at a 3.7 percent pace in the first three months of this year. That was much better than the 2.7 percent pace estimated just a month ago.

Still, the recovery has been losing power for two straight quarters. That raises concerns about whether it will fizzle out. Or worse, tip back into a "double-dip" recession.

The economy began to grow in the third quarter of last year after having suffered the worst recession since the Great Depression. And in the following quarter the economy's growth surged at a 5 percent pace, the high water mark of the rebound.

Much of the expansion was driven by the government's massive $862 billion stimulus package of tax cuts and increased spending. Also, companies helped energize growth with a burst of spending to replenish inventories that were cut down during the recession.

Now, as those forces are fading, concerns are growing as to whether the private sector can boost spending and investment enough to keep the recovery afloat.

Consumer spending, usually the lifeblood of economic activity, slowed in the second quarter. Such spending rose at an anemic 1.6 percent pace. That was down from a 1.9 percent pace in the first quarter and was the weakest showing since the end of last year.

Instead, Americans saved more. They saved 6.2 percent of their disposable income in the second quarter, the highest share in a year.

The 2.4 percent growth rate logged in the April-to-June quarter was slightly less than the 2.5 percent pace economists were forecasting. It was the weakest since a 1.6 percent pace in the third quarter of last year, when a record streak of four straight losing quarters came to an end.

"The economy is growing but not enough to make most Americans happy. At this weak pace, it will take more time than many hoped for people to really feel the benefits of this upturn," said Joel Naroff, president of Naroff Economic Advisors.

In the revisions issued Friday, the government estimated that the economy shrank 2.6 percent last year — the steepest drop since 1946. That's worse than the 2.4 percent decline originally estimated. The economy's plunge underscores why the unemployment rate surged to 10.1 percent in October, a 26-year high.

With the economy growing at a subpar speed, the current 9.5 percent unemployment rate is not expected to fall.

It takes about 3 percent growth in gross domestic product just to create enough jobs to keep pace with the population increase.

Growth would have to equal 5 percent for a full year to drive the unemployment rate down by 1 percentage point. Neither the Obama administration nor the Federal Reserve expect that to happen.

Gross domestic product measures the value of all goods and services - from machinery to manicures - produced within the United States. It is the best gauge of the nation's economic health.

The weak economy leaves Democrats and Republicans on Capitol Hill vulnerable as they head into the November midterm elections. Democrats, who now control both chambers, have the most to lose. The gloomier outlook is also a liability for President Barack Obama.

Consumer confidence is tumbling. The unemployed face fierce competition to find work. Those with jobs are seeing scant wage gains. Home values - often Americans' single-biggest asset - are weak. That explains why consumers are not in a mood to spend lavishly like they usually do in the early stages of an economic recovery.

It's also a major reason why the pace of this recovery is considered feeble by historical standards. When the country was recovering from a severe recession in the early 1980s, for instance, the economy's growth exceeded 7 percent for five quarters.

However, there were some encouraging signs in terms of business spending.

Spending by businesses on equipment and software increased at a blistering 21.9 percent pace in the second quarter, the most in nearly 13 years. Builders boosted spending on commercial projects, such as office buildings and plants, at a 5.2 percent pace. It marked the first increase after seven straight quarters of cuts.

And, home builders, who have cut spending for the last two quarters, ratcheted up their outlays at a hot 27.9 percent pace, the most in nearly 27 years. Still, with the expiration of the government's homebuyer tax credit, housing activity has started to turn sluggish again.

Looking ahead, though, businesses still aren't showing signs of ramping up spending that would translate into the explosive kind of growth needed to drive down unemployment.

Uncertain about the strength of the recovery, companies are sitting on record piles of cash, loath to use the money to hire new workers and expand operations. Caterpillar Inc., Dupont Co. and Microsoft Corp. are among companies reporting strong second-quarter earnings in the past two weeks yet they aren't ready to bulk up their work forces.

"There is a high degree of uncertainty. There is a recovery under way. It is going to be choppy," said United States Steel Corp. Chairman and CEO John Surma earlier this week.

Overall economic growth was bolstered in the second quarter by strong spending by the federal government. It boosted spending at a 9.2 percent pace, the most in a year. And, state and local governments, coping with budget shortfalls, increased their spending for the first time in a year.

Geithner on the Recovery
http://www.nytimes.com/2010/08/03/opini … amp;emc=th