Congress may extend unemployment benefits

WASHINGTON (Reuters) - The U.S. Congress will consider extending unemployment benefits after it returns in September to help 1.5 million Americans who risk exhausting them, Senate Majority Leader Harry Reid said on Friday.

"Soon after Congress returns to Washington we'll need to address this matter," Reid said. "There is an economic case to be made for extending unemployment benefits."

The unemployment rate eased to 9.4 percent in July from 9.5 percent the prior month, according to Labor Department data released on Friday. It was the first time the U.S. jobless rate has fallen since April 2008.

But the number of long-term unemployed continues to rise as the country struggles with the longest recession since the Great Depression of the 1930s, and many analysts attributed the dip in July to people giving up the job hunt.

Data ranging from home sales to manufacturing have pointed to an economic revival, but the unemployment rate is expected to remain high, which could lead to an anemic recovery. Obama administration officials say they still expect the unemployment rate to reach 10 percent this year.

As of July 25, 6.31 million people were collecting long-term unemployment benefits, according to Labor Department data.

Some 1.5 million of those people could exhaust those benefits by the end of the end of the year, according to the National Employment Law Project.

"We must help those who are suffering as a result of an economic crisis they did not create," Reid said.

Congress has already extended unemployment benefits for up to 79 weeks and Obama administration officials and Democratic leaders in the House of Representatives have said they will work to extend them further.

But that could widen the already yawning budget deficit, which shot up another $300 billion in July to reach a record $1.3 trillion for the first 10 months of fiscal 2009, according to the Congressional Budget Office.

The CBO expects the budget deficit to top $1.8 trillion for the fiscal year which ends September 30, in large measure due to a $787 economic stimulus bill passed by Congress in February.

Polls show rising public unease with the record deficit and Republicans have sharply criticized it.

"Instead of seeking new ways to expand the government, this Congress needs to get back to the basics of deficit reduction," Republican Senator Judd Gregg said in a statement.

(Additional reporting by Susan Cornwell, editing by Anthony Boadle)