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Jobless claims fall but recession still feared
September 22, 2011 / 12:37 PM / in 6 years

Jobless claims fall but recession still feared

WASHINGTON (Reuters) - Americans filed fewer new claims for jobless benefits last week but the decline was not enough to dispel worries the economy was dangerously close to falling into a new recession.

<p>People wait in line to enter a job fair in New York August 15, 2011. REUTERS/Shannon Stapleton</p>

Applications for unemployment benefits dropped 9,000 to 423,000 in the week ended September17, the Labor Department said on Thursday. That was roughly in line with expectations.

With recession fears mounting, the Federal Reserve warned on Wednesday of “significant” risks to the economy as it announced a new program to boost growth through cheaper borrowing costs.

“Job growth this month is probably not going to be stellar,” said Rudy Narvas, and economist at Societe Generale in New York, who said the data supported the Fed’s decision to take further measures to spur growth.

“The economy is chugging along near stall speed,” he said.

Fears of a renewed downturn are growing around the world. Reports in Europe and China showed private sector business activity declined sharply this month as the euro zone debt crisis and a stalling U.S. recovery hit confidence.

Seven world leaders demanded Europe take more decisive action and a European Central Bank study warned that the entire euro currency project was now in peril.

The Fed’s warning and the weak European and Chinese data hammered global stocks, including U.S. equities. Worries about the global economy also led the dollar to rally as investors dumped riskier assets like European and Brazilian stocks.

A separate report from the Conference Board showed U.S. economic activity rose more than expected in August but still suggested it would not accelerate much any time soon.

The private firm’s Leading Economic Index increased 0.3 percent. Still, “there is a growing risk that sustained weak confidence could put downward pressure on demand and business activity, causing the economy to potentially dip into recession,” said Ken Goldstein, an economist at the firm.

The U.S. economy grew at under a 1 percent annual rate over the first half of the year, and forecasters think it’s bumping along at a sub-2 percent pace now. Employment growth braked to a halt last month, raising recession fears.

MOVING AVERAGE RISES

While initial claims for state unemployment benefits dipped last week, the trend has moved higher. A closely watched four-week moving average of new claims edged up to 421,000, the highest level since the ended July 16.

Excluding one week in early August, first-time claims have held above 400,000 since early April, showing a still troubling pace of layoffs. A Labor Department official said there was no discernible effect from recent storms.

“It doesn’t look very robust at all,” said Robbert Van Batenburg, head of global research at Louis Capital Markets in New York. “Jobless claims are just one of the symptoms of what’s happening with the economy.”

Package delivery giant FedEx Corp said moderate global economic growth was a factor behind the firm’s move to cut to its profit outlook for the full year.

Many analysts are skeptical the Fed’s new program, which attempts to put downward pressure on borrowing costs by focusing its bond holdings more toward longer-dated debt, would do much to lower the country’s lofty 9.1 percent unemployment rate.

A run up in oil prices early this year and the devastating earthquake in Japan, which disrupted global supply chains, had weighed on U.S. growth earlier this year.

Even as those headwinds to growth were facing, a spending battle in Congress that left the country nearly unable to pay its bills over the summer hammered confidence.

“The two ... clouds still over us are the European crisis and the deep concern that you can see across the world and around the country about whether the political system in the United States is up to the challenges we face,” Treasury Secretary Timothy Geithner told a forum.

Additional reporting by Richard Leong and Emily Flitter in New York, and by Rachelle Younglai and Margaret Chadbourn in Washington

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