Economy growing, but not booming, reports show
BY FRANCINE KNOWLES Business Reporteremail@example.com May 31, 2012 7:32PM
Updated: July 6, 2012 9:54AM
Several reports out Thursday paint a picture of a U.S. economy that’s far from firing on all cylinders.
The day before the monthly national unemployment report is set to be released, the Commerce Department said the economy expanded at an annual rate of only 1.9 percent in the first three months of the year. That’s slower than the 2.2 percent rate initially estimated.
Meanwhile, the number of people seeking unemployment benefits hit a five-week high last week, rising by 10,000 to a seasonally adjusted 383,000.
In other disappointing job news, a survey by payroll processor ADP revealed private sector businesses added only 133,000 jobs last month.
And planned job cut announcements spiked 67 percent nationally in May from a year earlier, Chicago-based outplacement firm Challenger, Gray & Christmas said. Since January, they’re up 20 percent compared to the same period last year, and among Illinois-based employers, they rose 42.9 percent.
Adding to the bad news, the Dow fell 820 points in May, it’s worst performance in two years, and the S&P 500 had its worst month since September as worries over Europe’s continued to spook the markets.
“Tepid at best,” is how Chicago-based Mesirow Financial Chief Economist Diane Swonk characterizes the economy in the face of recent data. She noted the big reason economic growth slowed more than initially thought during the first quarter was due to greater reductions in state and local government spending. And that could signal trouble ahead.
“It sort of throws cold water on the view that most state and local governments had really already bitten the bullet and done the cutting that they needed to do already,” she said. “This sort of says maybe we’re not quite done with that process and maybe creates a little bumpier road on that front going forward.”
Chicago-based Morningstar Inc. economist Robert Johnson doesn’t expect major improvement in economic growth this year. “I think we’re kind of muddling along.” His forecast is for an annual growth rate of 2 to 2.5 percent for the year.
“That’s not as good as the 3 to 4 percent that we really need to make a huge dent in the unemployment rate or to look more like a normal recovery,” he said. “But it’s better than the alternative, which is going downhill, and I don’t really think we’re doing that.”
A bit of good economic news released Thursday was retail sales data, which showed on average retailers posted a 4 percent rise in sales in May for stores open at least a year, according to the International Council of Shopping Centers. That’s better than the 3.6 percent analysts were expecting and up from 2.4 percent in April — the worst monthly performance since November 2009.
“I think if the economy were falling apart, certainly one of the first things you’d tend to see is retail sales fall apart, and that just hasn’t happened,” said Johnson.
A variety of retailers, from discounters to luxury chains, posted gains during the month, the report showed. Among them was Target, which said its revenue was up 4.4 percent, beating the 3.5 percent estimate analysts polled by Thomson Reuters were expecting. Macy’s said its revenue rose 4.2 percent at its Bloomingdale’s and namesake department stores, better than the 4 percent Wall Street expected. But the retailers’ report only represents roughly 13 percent of the U.S. retail industry.