Weekly claims and GDP: Why Congress must act
Commentary "Weekly claims are down and U.S. growth is up, so that's good news, right?" was the question that the radio anchor asked me as soon as two economic reports came out. Yes, the Labor Department said the number of people applying for weekly unemployment benefits dropped last week to its lowest level since April 2008 and yes, the GDP grew at annual rate of 1.8 percent in the third quarter. Still, beneath the headlines lie some worrying hurdles ahead.
Weekly claims have declined in 11 of the last 13 weeks, but some of the improvement can be attributed to workers who landed seasonal jobs. And while a component of a healthy labor market includes a lower number of people seeking benefits, what's more important is job creation. On that front, the news is a not quite as encouraging. In November, the private sector created 140,000 jobs, and the government cut 20,000. 120,000 jobs a month is not strong enough to put 13.3 million Americans back to work any time soon.
What usually propels job creation is strong economic growth, and 1.8 percent does not qualify as "strong." Through Q3, 2011 growth could be described as tepid at best. After a decent 3 percent expansion in 2010, Q1 2011 started with a whimper -- 0.4 percent growth, followed by 1.3 percent in Q2 and now 1.8 percent for Q3. The good news is that economists think the fourth quarter is likely to see a big bounce -- as much as 3.7 percent, a pace not seen since the first half of 2010.
Unemployment applications lowest since April '08
Economy grew more slowly in Q3
Will the economy turn around in 2012?
The problem is the same folks don't think that growth will last in 2012, with expectations hovering at 2 percent to 2.5 percent for the full year. The reason for the drop-off is that some of the fourth quarter growth will be attributed to one-time events like the restocking inventories, which means that 2012 growth will be a function of aggregate demand, the sum of household, business, government, and foreign demand for our goods and services. As my colleague Mark Thoma notes: "Households are in no position to help, businesses -- including housing construction -- are also unlikely to provide the needed boost ... if anything, the size of government will contract, and with all the uncertainties in Europe the foreign sector is not the answer, either."
Given the sluggish growth expected for 2012, economists are practically begging lawmakers to extend the payroll tax cut and the extension of benefits for the long-term unemployed. Congressional inaction could slice 2012 by a full percentage point. At that point, there would only be one question: Can Congressional approval levels drop below zero?
