Economic Outlook: Rally pauses for breath

By ANTHONY HALL, United Press International  |  June 22, 2009 at 7:58 AM
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A rally in U.S. markets fell flat last week with the Dow Jones Industrial Average crawling to a loss of 3 percent Monday through Friday.

The upbeat mood that accompanied the DJIA's 40 percent rise from its lows in March appears to be in jeopardy as fundamentals remain weaker than investors would like. Home sales have shown hints of stabilizing, but home prices are still in decline in most cities.

For two months, industry analysts have said automobile sales are at or near the bottom, but improvements in the market have yet to appear.

Improvements, when they arrive, are certain to include diluted strength of Chrysler and General Motors Corp, as foreign competitors jump at the chance to further their market share while the GM and Chrysler pare down to return to profitability.

Turning markets around will also require jobs and lots of them. Instead, unemployment has risen to 9.4 percent and a majority of economists says it will only get worse before it improves.

Last week, the U.S. Labor Department said unemployment in Michigan had hit 14.1 percent in May. Oregon's unemployment rate hit 12.4 percent, while Rhode Island and South Carolina reached 12.1 percent unemployment. In California, the unemployment rate is 11.5 percent, the highest it has been in more than 30 years.

Demographics and technology are already working against the employment situation, The Washington Post reported Monday.

Beyond the 5.7 million jobs lost since the recession began in December 2007, the Post reported it will take as many as 150,000 new jobs a month just to absorb the growing number of people entering the work force.

In addition, advances in technology have a tendency to eliminate jobs, not increase them.

Behind the figures, Republicans have begun to take serious swipes at the Obama administration's $787 billion stimulus spending bill, which came with the promise of improvements on the job front.

Most economist say the stimulus package was necessary to support jobs and Christina Romer, chairwoman of the Council of Economic Advisers, said there will be "big increases in stimulus spending in the fall and early next year," promising "targeted interventions" aimed at specific industries if improvements do not match expectations.

Senate Minority Leader Mitch McConnell, R-Ky., however, may already be beating the war drums for midterm elections, lamenting the administration's rush to spending.

"They even predicted that if we passed it quickly, unemployment wouldn't go higher than 8 percent. Well, here we are just a few months later and the unemployment rate is approaching 10 percent," McConnell said.

With consumer spending accountable for about 70 percent of the gross domestic product, Main Street and Wall Street both have job creation to worry them.

"I find it unfathomable that people are not horrified about what is going to happen," Lawrence Mishel, president of the Economic Policy Institute, told the Post.

"We're looking at persistent unemployment that is going to be extraordinarily damaging to many communities. There is a ton of pain in the pipeline," Mishel said.

Markets on Monday were mixed in Asia. In Europe, they looked to continue last week's downward trend.

In Japan, the Nikkei average gained 0.41 percent. The Hang Seng index in Hong Kong was up 0.77 percent. The Singapore Straits Times fell 0.28 percent, while the S&P/ASX in Australia rose 0.48 percent.

In midday trading, the FTSE 100 in London dropped 1.34 percent. The DAX 30 in Frankfurt fell 1.64 percent. The CAC 40 in Paris slipped 1.67 percent, while the broader DJStoxx 600 lost 1.3 percent.

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