The Congressional Budget Office chief told Congress Thursday that rising unemployment likely will continue into next year.
By Mosheh Oinounou
While the economy will begin growing again by the end of 2009, the unemployment rate will continue to expand into next year, the Congressional Budget Office reported Thursday.
The CBO projects Americans will continues to lose jobs through mid-2010, with the umemployment rate peaking at 10.5 percent next year, CBO Director Doug Elmendorf said in testimony before the House Budget Committee.
The CBO’s March assessment initially predicted unemployment would peak at 9.5 percent.
“We think it will be a slow, a painfully slow recovery,” Elmendorf told the committee, citing the ongoing crises in the housing and credit markets.
He added that the financial system is still in a “weakened state” even though it “has crawled back from the edge of the abyss.”
“All of those factors will lead to a tepid recovery, somewhat more tepid than we thought and assessed the conditions a few months ago,” Elmendorf noted.
He said employment numbers are often a lagging indicator of economic recovery, noting a number of positive trends including stabilizing manufacturing output, signs of life when it comes to consumer spending and confidence and that the decline in housing construction may be close to bottoming out.
The current unemployment rate is 8.9 percent. The Labor Department on Thursday reported 631,000 new jobless claims last week.
The Federal Reserve said Wednesday that the unemployment rate could rise to 9.6 percent this year and remain elevated until 2011. Some private economists told The Associated Press they expect the rate to reach 10 percent by the end of this year.
May 21 (Bloomberg) — More Americans than forecast filed claims for unemployment insurance last week, and the total number of workers receiving benefits rose to a record, signs the job market continues to weaken even as the economic slump eases.
Initial jobless claims fell by 12,000 to 631,000 in the week ended May 16, from a revised 643,000 the prior week that was higher than initially estimated, the Labor Department said today in Washington. The total number of people collecting benefits rose to 6.66 million, a record reading for a 16th straight week, and a sign companies are still not hiring.
Job losses are likely to continue after Chrysler LLC filed for bankruptcy and General Motors Corp. may follow suit and terminate 1,100 U.S. dealers. The auto slump threatens to slow any recovery from the deepest recession in half a century and keep pushing unemployment higher.
“We expect upward pressure on claims stemming from auto- related layoffs,” said Maxwell Clarke, chief U.S. economist at IDEAglobal in New York, who acurately forecast the initial claims number. “The labor market will remain weak, with gradual improvement on the horizon.”
Stock index futures were lower and Treasuries were little changed after the report. The contract on the Standard & Poor’s 500 Index fell 0.7 percent to 893.2 as of 8:38 a.m. in New York. The benchmark 10-year note yielded 3.18 percent, down 1 basis point from yesterday.
Economists surveyed by Bloomberg had forecast claims would drop to 625,000 from the 637,000 initially reported for the prior week, according to median of 42 estimates. Projections ranged from 585,000 to 675,000.
The four-week moving average of initial claims, a less volatile measure, decreased to 628,500 from 632,000.
Today’s Labor report showed the unemployment rate among people eligible for benefits, which tends to track the jobless rate, climbed to 5 percent in the week ended May 9, the highest level since December 1982, from 4.9 percent. These data are reported with a one-week lag.
Thirty-four states and territories reported an increase in new claims for the week ended May 9, while 19 reported a decrease.
The ‘majority’ of last week’s decrease in claims was in states that reported a jump in auto-related filings the prior week, a spokesman for the Labor Department said.