Unemployment Claims Reach An Unexpected High

August 13, 2010

The latest employment figures from the Labor Department paint an ugly picture--the number of new jobless benefits claims by U.S. workers rose this week to their highest level in six months. Coupled with the stock market's inability to gain traction, the report about jobless claims is yet another piece of evidence that the economy continues to falter.

According to Reuters, jobless claims for state unemployment insurance rose for the second straight week. With unemployment rates continuing to hover at nearly 10 percent and a slowing stock market, the Federal Reserve has tempered its view on the economy, believing the overall recovery may be more moderate than it first expected.

David Resler, chief economist at Nomura Securities International, said in a Bloomberg report, "There's still considerable uncertainty about the economic outlook...This week's increase was more disappointing than what we've seen in recent weeks."

Indeed, the rise in jobless claims to 484,000 this week was not what most economists expected. A Bloomberg News survey revealed economists forecasted jobless claims would fall to 465,000. Yet, says economist John Canally with LPL Financial to CNN Money, "It's just more of the same. This data doesn't break out of the range, and that's going to continue until companies can see their way to adding some jobs."

The result of the slowing job market is less worker productivity. According to CNN Money, worker productivity for the second quarter of 2010 fell by nearly one percent--the first decline in productivity in 18 months. With workers being stretched too thin, all indications point to companies and employers needing to start hiring again. Yet, companies remain skeptical of the overall economic outlook, meaning they are spending capital not on payroll, but on capital and equipment.

Canally continues, "Companies have cash...They have credit if they need it. They just haven't been willing to step up new hiring."

According to Reuters, a recent NBC/Wall Street Journal poll revealed the dim economic outlook is leading to increased pessimism across the country. In fact, nearly two-thirds of Americans surveyed believe the economy could worsen before it improves and almost sixty percent of those believe the country is headed in the wrong direction. This pessimism could impact the upcoming political races in November, with incumbent politicians facing increased pressure and scrutiny.

However, Congress did take proactive steps this week to aid state governments. Bloomberg reports Congress passed a $26 billion aid package to states aimed at preventing thousands of teacher and public service employee layoffs. Cash-strapped states are facing budget gaps of $84 billion, according to research from the National Conference of State Legislatures.

Like Congress, the Federal Reserve continues to work to prevent possible deflation or even a renewed recession. The Federal Reserve announced it would keep its benchmark interest rate at its lowest levels as well.

Action by Congress and the Federal Reserve indicate measures are in place to keep the economy moving, although the outlook might be mixed. Congress did recently extend traditional unemployment benefits last week, which has helped millions of Americans get through day-to-day.

Compiled by CityTownInfo.com Staff