Weak Job Market Hinders U.S. Economy

The weak job market is weighing on the U.S. economy three years after the "Great Recession" supposedly ended and the signs suggest that hiring may not increase any time soon. The number of people applying for unemployment benefits over the past month has reached a six month high according to the government. The increase suggests that layoffs are rising and that June was another slow month for hiring.

Sales of previously occupied homes also fell in May. The Federal Reserve recently issued a pessimistic report which caused a sharp decline in stock prices. Applications for unemployment benefits recently dipped from 389,000 to 387,000 according to the Labor Department. However, the four week average, which is a less volatile measure, rose to 386,250, which is the highest level since December. When applications for unemployments benefits top 375,000 hiring is generally too weak to rapidly lower the unemployment level.

Home sales also fell 1.5% in May from April to a seasonally adjusted rate of 4.55 million according to the National Association of Realtors. Sales are up 9.6% from a year ago, which suggests that the housing market is slowly improving. However, the annual sales rate is far below the 6 million that economists consider healthy.

One of the few positive signs is that a gauge of future U.S. economic activity rose in May to its highest level in four years. The Conference Board's index of leading economic indicators increased to 95.8, which is the highest level since June of 2008, which was six months into the recession. However, before the recession the index routinely topped 100.

The mostly negative news came after the Fed downgraded its outlook for growth and took another step to try and pump up the economy. The Fed now expects growth of only 1.9% to 2.4% for the year. That is 0.5% lower than its previous estimate. The Fed also thinks the unemployment rate, now at 8.2%, will not fall much further this year.

To try and boost growth and hiring the Fed said it would extend a program intended to drive down long-term U.S. interest rates, which it hopes will encourage more borrowing and spending. Hiring slowed signficantly in April and May, raising concerns about the strength of the recovery. Employers have added an average of only 73,000 jobs a month in April and May. That is much lower than the average of 226,000 added in the first three months of the year.

Some economists have warned that the weaker job market may have started to affect home sales, which until recently had been showing modest improvement. Purchases made by first time homebuyers, who are essential to a housing recovery, dropped in May. Sales also fell in every region except for right here in the Midwest.

A positive note from the report is that the supply of homes for sale remains low. The inventory of unsold homes in May was just 2.49 million, roughly the same as in April. It would only take about six months to exhaust the supply at the current sales pace. The supply has not been this low relative to the pace of home sales since 2006. A low home supply usually encourages more people to put homes up for sale, which generally improves the overall quality of the homes on the market, in turn driving prices higher.

Regardless of the drops in the survey, companies insist they are more optimistic about business conditions in the six months. A gauge of future expectations rose to 19.5 in June from 15 in the previous month.

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