Slow-motion recovery keeps unemployment rate high

WASHINGTON -- High unemployment isn't going away.

The slow pace of economic growth shows the recovery is too weak to generate enough jobs for 15.3 million unemployed people. Layoffs are contributing to the problem. That's evident from an elevated number of weekly claims for jobless aid.

Two government reports Thursday offered new evidence on all of those fronts.

For many Americans, it doesn't feel much like a recovery.

"We're out of recession, but the recovery is not going to bring a whole lot of smiles," said Joel Naroff, of Naroff Economic Advisors.

The economy grew at a 3 percent annual rate from January to March, according to a new estimate released by the Commerce Department Thursday. The new reading, based on more complete information, was slightly weaker than an initial estimate of 3.2 percent a month ago.

Consumers spent less than first estimated. Same goes for business spending on equipment and software. And the nation's trade deficit was a bigger drag on economic activity. Those factors led to slower growth last quarter than first estimated.

In a separate report, the Labor Department said the number of newly laid off workers filings claims for unemployment benefits fell to 460,000 last week. But the latest level of claims is actually higher than it was at the start of the year.

By this point in the recovery, economists had hoped claims would be in the 400,000 to 425,000 range. That would signal more robust job growth was on the way.

The economy did add a net 290,000 jobs in April, the most in four years. But much stronger job growth is needed to drive down the 9.9 percent unemployment rate.

Wall Street looked past the disappointing U.S. economic reports and focused on China. Stocks soared after China reassured investors it doesn't plan to sell any of the European debt it holds. The Dow Jones industrial average gained 284.54 points to close at 10,258.99.

During normal times, expansion in the 3 percent range would be considered healthy for the U.S. economy. But the country is coming out the worst recession since the Great Depression. So growth needs to be stronger -- two or three times the current pace-- to make a dent in the jobless rate.

Economists say it takes about 3 percent growth to create enough jobs just to keep up with the population increase. It would have to be about 5 percent for a full year just to drive the unemployment rate down 1 percentage point.

After the last severe recession in the early 1980s, GDP grew at rates of 7 to 9 percent for five straight quarters and the unemployment rate dropped from 10.8 to 7.2 percent in 18 months.

Economists don't see that happening this year. In fact, expansion in the first quarter was slower than the 5.6 percent rate in the final quarter of 2009. But economists had predicted that growth spurt would fade.

GDP measures the values of all goods and services -- from machines to manicures -- produced within the United States. It is the best measure of the country's economic health.

The National Association for Business Economics predicts moderate economic quarterly growth in the 3 percent range through the rest of this year.

The outlook means employers won't feel comfortable about bulking up their work forces.

Employers would need more confidence that sales will rise enough for them to ramp up hiring and raise workers' pay, analysts say. Shoppers need to be able and willing to borrow more. And Americans need to rebuild more of their household wealth, especially equity lost from home values that tanked during the recession.

Businesses are now faced with new worries about how Europe's debt crisis will affect their sales. Exporters, for example, are expecting to see slower sales from Europe, which could constrain hiring. Wall Street turmoil in response to Europe's woes could make those who have retirement savings invested in the stock market spend less.

Housing and commercial real-estate are major weak spots for the economy. Builders cut spending in each by double digits in the first quarter.

Christina Romer, head of the White House Council of Economic Advisers, said in Paris Thursday that it would be a mistake for the U.S. to rapidly wind down stimulus measures.

Her comments come as federal lawmakers are at odds over a long-term extension of unemployment benefits. Democrats would like to pass the emergency spending measure before they go on vacation next week. But Republicans and conservative Democrats are pushing back over the price tag.

House leaders hope to vote Thursday on the bill. The Senate would follow.

If Congress doesn't act, thousands of people would begin to lose jobless benefits when an extension of unemployment insurance expires next week. A 65 percent subsidy for health insurance benefits for the unemployed under the COBRA program also expires.

Even with the federal relief, economists don't expect the economy to snap back.

"Recovery will be a long, drawn-out slog," said Nigel Gault, chief U.S. economist at IHS Global Insight.