Outlook of US Economic Recovery Remains Uncertain

The outlook of US economic recovery in the rest of the year remains uncertain as the unexpected surge of unemployment rate and several other bad economic news dashed the hopes that the economy will turn around soon.

The government reported Friday that the nation's unemployment rate jumped by 0.4 percentage point to 4.9 percent in August, the highest level in nearly four years, as the economy slashed 113,000 jobs.

Investors, who are worried about the outlook of corporate earnings and the economy, have been hastily to sell off stocks, driving down the stock market to the lowest level in nearly three years.

Over the past two weeks, the Standard & Poor's 500-stock index, a broad-based measure of U.S. stocks regarded by professional investors as the single best measure of overall market, has declined 8.4 percent. It dropped almost 2 percent on Friday to close at 1085.78, the lowest point since October 1998.

In another sign confirming that the economy remains weak, the National Association of Purchasing Management reported Thursday that its Non-Manufacturing Business Activity Index dropped 3.4 percentage points to 45.5 in August. A level below 50 indicates that business is contracting.

The unemployment report prompted President George Bush to abruptly call an emergency meeting at the White House Friday to discuss the economic situation.

"I want the American people to know we're deeply concerned about the unemployment rates and we intend to do something about it," Bush said.

Bush said Congress should give him fast-track authority to negotiate trade deals with foreign nations to boost export-related jobs and energy legislation to create more employment in that sector. Both issues are subjects of major debate in Congress.

Economists fear that if the employment climate continues to seriously worsen, consumers, who have been keeping the economy afloat, might sharply cut back spending and tip the country into recession.

"The unemployment rate was higher than we anticipated and people are concerned that the economic slowdown isn't showing signs of recovery," said Robert Harrington, head of listed block trading at UBS Warburg.

"People are looking for a third-quarter turnaround and that's not happening, now the fourth quarter is a question mark and we've pushed projections out to 2002," he added. After the jobs data, UBS Warburg slashed its forecast for third quarter 2001 growth to 0.5 percent from 1.8 percent and now expects growth at an annualized rate of 2 percent in the final quarter from 3.1 percent earlier projected.

Lehman Brothers also cut its growth forecast to an annualized rate of 1 percent in both the third and fourth quarters from 2 percent and 3 percent respectively.

In an effort to stave off recession, the Federal Reserve has cut interest rates seven times, totaling 3 percentage points, driving down the borrowing costs to the lowest level in more than seven years. Economists expect the Fed to cut interest rate again when it next meets October 2.

The Bush administration is still counting on tax rebate checks and the Fed's aggressive credit easing to boost demand and lift the country out of a serious slowdown.

U.S. Treasury Secretary Paul O'Neill said on Saturday in Suzhou, China, that the U.S. economy was on the road to recovery and he had not been surprised to see unemployment skip higher in August.

"I think the correction process is going on and that we're going to see a return to some much better rate of growth as we go through the year and into next year," said O'Neill, who is in China to attend the meeting of finance ministers from the Asia Pacific Economic Cooperation.

Some analysts also said the unemployment report more likely reflects a lagged effect on job markets from the economy's near- zero growth this spring rather an a sudden turn for the worse. Several experts said the economy is still likely to improve this fall, albeit at a modest pace.

The jobless rate's stability of the past few months "made no sense at all and a correction was inevitable," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

"This will doubtless shock the markets and it makes an October interest rate cut more likely. But it does not change the outlook for a near-term recovery at all. These numbers reflect the second- quarter economic stall," he said.

President Bush's economic adviser Glenn Hubbard said on Friday that a sharp jump in the U.S. unemployment rate for August was not good news but that it did not change expectations for an economic rebound.

He said White House projections last month for 3.2 percent growth in 2002 remained reasonable.






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