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Posted Saturday, September 19, 2010
WASHINGTON (AP) -- The economy may have a long way to go, but at least two big
threats are fading.
|Two big threats to the U.S.
economy shrink a bit
|By Christopher S. Rugaber,
|AP Economics Writer
Economists are less worried that the U.S. will experience another round of mass
layoffs and its first bout of deflation since the 1930s after the release of two
government reports Thursday.
The third drop in jobless claims in four weeks and a mild uptick in wholesale
prices in August add to evidence that a second recession is unlikely. Concerns
about another downturn intensified last month when jobless claims spiked past
the half-million mark. Wholesale prices, meanwhile, fell in early summer for
three straight months. But those trends have, for now, reversed themselves,
leaving an economy that is still growing, but at a pace too slow to create many
First-time applications for jobless benefits fell by 3,000 to a seasonally
adjusted 450,000 last week, the lowest level in two months, the Labor Department
Despite the drop, initial claims for unemployment benefits are above levels that
would signal a hiring boom. In a healthy economy, claims usually fall below
And some companies are still letting go of workers -- FedEx announced Thursday
it would be cutting 1,700 jobs.
Still, applications for unemployment benefits have dropped nearly 11 percent in
the past month.
Chris Rupkey, an economist at Bank of Tokyo-Mitsubishi UFJ, said last month's
spike in claims was a "false alarm."
"The labor markets are stable and companies are not increasing layoffs," he said
in a note to clients.
David Resler, chief U.S. economist at Nomura Securities, said last month's leap
in claims may have resulted from the ending of hundreds of thousands of
temporary census jobs. With that distortion largely completed, the job market
could stabilize, he said.
A second Labor report said that wholesale prices, which measure price changes
before they reach the consumer, rose 0.4 percent in August after rising 0.2
percent in July.
Excluding food and energy costs, so-called "core" producer prices were
relatively flat. They rose just 0.1 percent and are up 1.3 percent in the past
year. That indicates the weak economy is keeping inflation in check.
Concerns about deflation grew this spring after prices declined for three
straight months. July's increase quieted most of those fears. Economists said
Thursday's report confirmed that deflation is not an immediate threat. Deflation
is a prolonged drop in prices and wages.
Also Thursday, the Commerce Department said the broadest measure of the U.S.
trade deficit widened for the fourth straight quarter. The current account trade
deficit grew to $123.3 billion in the April-to-June period, a 12.9 percent
increase from the first quarter. A year of growth could be viewed as a healing
sign for the U.S. economy as Americans slowly regain their appetite to spend.
That pushes up imports and widens the current account deficit.
The reports follow other data earlier this week that showed modest improvement
in the economy. In August retail sales rose slightly and output at factories
grew for the 12th time in 14 months.
Still, the unemployment rate is stubbornly high and there are no signs that
companies are ready to add enough workers to change that.
Many analysts forecast that economic output will increase by less than 2 percent
in the current quarter. That's down from 3.7 percent in the January-to-March
quarter and not fast enough to reduce the 9.6 percent unemployment rate.
The number of people continuing to receive jobless benefits fell by 84,000 to
just below 4.5 million, the claims report said. But that doesn't include several
million people who are receiving unemployment aid under extended programs
approved by Congress during the recession. The extended benefit rolls fell by
more than a half-million to just under 5 million in the week ending Aug. 28, the
latest data available.
Some companies are still cutting jobs. FedEx said Thursday that it would combine
its money-losing FedEx Freight division with another unit. Shipments of
refrigerators and other large appliances are still weak, the company said. FedEx
will close 100 facilities and cut 1,700 workers.
And the Great Atlantic & Pacific Tea Co., a supermarket chain that owns A&P and
other stores, said this week that about 600 of its workers in Connecticut face
layoffs when the company closes several stores in the state this fall.
Some companies are adding jobs. A General Motors official said earlier this week
that the company will recall 400 union workers to its engine-building plant in
Spring Hill, Tenn. About 2,000 people were laid off from the plant last year.
AP Business Writers Daniel Wagner and Jeannine Aversa contributed to this
Copyright 2010 The Associated Press
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