U.S. Can't Rescue World Economy
There was good news on the American job market Thursday, but skepticism on whether the U.S. recovery was strong enough to bolster the world economy.
After rising for three straight weeks, new claims for unemployment benefits dropped last week to the lowest level in nearly a month, raising hopes that the pace of layoffs may be starting to slow down again.
Meanwhile, the International Monetary Fund said the U.S. economy is growing faster than expected but won't be able to provide as much global stimulus as in the past because of soaring budget and trade deficits.
The Labor Department reported Thursday that for the work week ending Sept. 13, new claims for jobless benefits fell by a seasonally adjusted 29,000 to 399,000. In another somewhat encouraging note, the sharp decline pushed claims just below 400,000, a level associated with a weak labor market.
Last week's level of claims was not only the lowest since the week ending Aug. 23 but also marked the first time since then that claims dipped below the 400,000 mark. The latest snapshot of the labor markets was slightly better than economists were expecting; they were forecasting claims to fall no lower than 410,000 for last week.
The more stable four-week moving average of claims, which smoothes out week to week fluctuations, however, rose last week to 410,750, an increase of 2,000 from the previous week, and the highest level since the middle of July.
Economic activity, which slowed in the United States from about mid-2002, began to regain momentum after the Iraq war in March-April with increased government spending, consumption and private investment, the IMF said in its biannual World Economic Outlook.
That recovery should continue into 2004 at a somewhat stronger pace than earlier expected, it said: 2.6 percent in 2003 and 3.9 percent in 2004. Those are up from the 2.2 percent and 3.6 percent forecast last April.
"Right now the United States is just charging ahead," said the IMF's chief economist, Kenneth Rogoff. "It has the best recovery money can buy.…But this comes at a cost of mortgaging growth further down the road."
Rogoff told a news conference that U.S. productivity figures were "encouraging" for the longer term.
But, he added, "one has to be quite concerned about what will eventually happen when the twin deficits — fiscal and current account — are reined in, as eventually they must be," he said.
The IMF noted the costs related to Iraq would only worsen an already ballooning U.S. budget deficit, which it warned would offset the longer-term benefits of the Bush administration's tax cuts if sustained.
After registering the largest-ever budget surplus in 2000 — $236 billion, or 2.4 percent of gross domestic product, and slightly less than half that in 2001 — the United States is expected to post a deficit of $455 billion, or 4.2 percent of GDP, in 2003.
Although other parts of the economy are improving, the labor market is expected to be the last to heal. Economists believe companies will want to wait until profits get stronger and they have more confidence in the rebound's vigor before they go a hiring spree.
The nation's unemployment rate dipped to 6.1 percent in August, but businesses slashed 93,000 jobs, the seventh month in a row of job losses, a discouraging climate for jobseekers. Healthy productivity gains, meanwhile, has allowed companies to produce more with fewer workers, a factor contributing to the lackluster job situation, Federal Reserve Chairman Alan Greenspan says.
Greenspan and his Federal Open Market Committee colleagues on Tuesday decided to hold a key short-term interest rate at a 45-year low of 1 percent.
In other economic news this week: