Improving economy not likely to lower jobless rate

WASHINGTON: The economy is showing consistent signs of improvement, but probably not enough to stop employers from cutting jobs or to keep the unemployment rate from rising.

The Labor Department is expected to report Friday that the jobless rate increased to 9.5 percent in August, from 9.4 percent in July, as employers cut 225,000 jobs.

The employment report will follow other recent data that shows the economy is pulling out of the worst recession since World War II. A trade group reported Tuesday that the manufacturing sector grew in August for the first time in 19 months, while home sales have increased for several months.

But the economy isn't expected to grow strongly enough this year to persuade companies to ramp up hiring. Most economists expect the unemployment rate to top 10 percent by early next year.

"We have a very long, painful healing process ahead," said Bruce Kasman, chief economist at JPMorgan Chase & Co. "The good news is we're starting it, the bad news is we need much faster growth" to bring the employment rate down.

A loss of 225,000 jobs would be the smallest monthly decline since last year, a sign that layoffs are easing. Employers cut 247,000 jobs in July, compared with an average of 691,000 per month in the first quarter.

Still, the job cuts are holding down wages and salaries, while credit remains tight and home prices and stock portfolios have fallen. All those trends are restraining consumer spending, which makes up 70 percent of the U.S. economy, and could weaken the recovery.

Most retailers posted sales declines last month as shoppers limited back-to-school purchases to focus on necessities. Discounters did better than upscale chains, but the results Thursday raised further concern about the upcoming holiday season.

Other economic news on Thursday was mixed. The Institute for Supply Management, a trade group, said the service sector inched closer to growth in August, but still contracted for the 11th straight month.

The ISM's services index, which covers hospitals, retailers, financial services companies and more, rose to 48.4, up from 46.4 in July. Still, readings below 50 indicate the sector is shrinking.

In a separate report, the Labor Department said the number of laid-off workers applying for benefits dipped to 570,000 last week from an upwardly revised 574,000. That was a weaker performance than the drop to 560,000 claims that economists projected.

The number of people receiving jobless benefits totaled 6.23 million, up 92,000 from the previous week, which had been the lowest level since April.

Economists closely watch initial claims, which are considered a gauge of layoffs and an indication of companies' willingness to hire new workers.

First-time claims have trended down in recent months and are below the recession's high of 674,000, reached in the first week in April. But even with the improvement, they are running at levels well above the 325,000 mark considered a sign of a healthy economy.

Federal Reserve policymakers said in minutes from an August meeting, released Wednesday, that they expect the economy to recover in the second half of this year. But labor market conditions are still "poor," the Fed minutes said, and many companies are likely to be "cautious in hiring" even as the economy picks up.

Many economists credit the Obama administration's $787 billion economic stimulus package of tax cuts and spending increases, along with the Cash for Clunkers program, with helping spur the recovery. But they worry about what will happen when the impact of the stimulus efforts fades next year.

Vice President Joe Biden issued an upbeat report card on the economy Thursday, saying that the massive stimulus program had been more effective "than we had hoped."

Still, consumers are not spending enough to boost retailers' bottom lines. Discounter Target Corp. and warehouse club operators Costco Wholesale Corp. and BJ's Wholesale Club Inc. said Thursday that sales at established stores dropped.

A 5 percent jump at TJX Cos., which operates discount chains TJMaxx and Marshall's, topped expectations. But upscale retailers, including Saks Inc. and Nordstrom Inc., reported a weak month.

On Wall Street, stock indexes rose. The Dow Jones industrial average added about 64 points, as broader indexes also edged up.

More job cuts were announced this week. Washington-based manufacturer Danaher Corp. said it will lay off about 3,300 of its roughly 50,000 employees, an increase from the 1,700 cuts it announced in the spring. American Airlines said it is cutting 921 flight attendant jobs as it deals with an ongoing downturn in traffic and lower revenue.

ECB keeps interest rate at historic low of 1.0%

FRANKFURT : The European Central Bank (ECB) held its key interest rate at an all-time low of 1.0 percent Thursday as the 16-nation eurozone economy showed clear signs of robust health.
Sweden's central bank also left its main lending rate at a record low of 0.25 percent, and issued improved forecasts for the Swedish economy.

ECB president Jean-Claude Trichet was expected to unveil brighter estimates by bank staff for the eurozone economy as well, which expanded in August for the first time since May 2008, a closely-watched survey showed.

The purchasing managers' index (PMI) for the eurozone compiled by data and research group Markit rose to 50.4 points in August -- crossing the 50-point line that indicates business activity returning to growth.

In Paris, the Organisation for Economic Cooperation and Development said the United States and eurozone were on track to pull out of recession in the third quarter of this year but that the outlook beyond was still highly uncertain.

Many economists expect global recovery to be slow and Trichet warned last month the road would probably be a bumpy one.

But new ECB staff forecasts expected to revise the economic outlook upwards "will provide ground to assess the recent improvement in data and gauge the effectiveness of the monetary policy transmission to date," UniCredit analysts said in a research note.

The central bank has slashed its lending rates from a high of 4.25 percent and pumped hundreds of billions of euros (dollars) into the banking system and corporate lending markets to underpin weak activity.

The next interest rate movement is likely to be an increase as the economy recovers, but analysts do not expect that before well into 2010 at the earliest.

They also do not think the ECB will reverse other policy measures any time soon.

A Natixis research note said that "a tightening should not occur before mid-2011" because inflation would remain tame and growth uncertain in the near future.

Trichet's press conference that follows rate decisions "should reflect some cautious optimism but yet point that exit strategies currently are not on the ECB's radar screen," UniCredit analysts said.

The eurozone economy was last forecast to contract by 4.6 percent this year and to shrink by a further 0.3 percent in 2010.

The entire 16-nation economy contracted by just 0.1 percent in the second quarter of 2009 owing mainly to lower investment, a big improvement nonetheless from the record 2.5 percent drop in the first three months of the year.

Previous inflation estimates of 0.3 percent for this year and 1.0 percent in 2010 are believed less likely to see major changes however.

The main hurdles to a strong eurozone rebound are jobless rolls that hit a 10-year high in July of more than 15 million people and a potential credit squeeze that could choke off a sustained economic recovery.

The OECD report said: "Numerous headwinds imply that the pace of the recovery is likely to be modest for some time to come."

German Economy Minister Karl-Theodor zu Guttenberg unveiled on Tuesday a 17.5-billion-euro (25-billion-dollar) proposal to ease tight credit by lending directly to businesses and backing up credit insurers.

"We want to ensure that small- and medium-sized companies in particular can gain access to enough credit, even in economically difficult times," he said.

Nokia plans more phones, netbook

STUTTGART: Nokia Corp., the world's biggest maker of cell phones, on Wednesday unveiled new models that boast more music features and mesh better with Facebook and the Finnish company's upcoming netbook.
The announcements are part of Nokia's attempt to branch out into new markets, such as wireless online services.
"We are not on the defensive, we are on the offensive," Nokia executive vice president Anssi Vanjoki said at the two-day Nokia World event in Germany.
The Espoo, Finland-based company said it made a deal with Facebook, the wildly popular social networking site, that will let users of some its handsets update their location and status directly to the site through a Nokia Ovi account.
The feature will premier on the new N97 mini phone that was also introduced Wednesday and will retail for euro450 ($644.13) without a contract when it starts shipping in October.
"People want to bring their physical and online worlds together via the Internet. The Nokia N97 mini is designed for this new social Internet and to help navigate people and places," said Jonas Guest, vice president of Nokia Nseries.
Nokia has been the top handset maker since 1998 but has gradually expanded to include online services, such as downloads of music, games, maps and the fast transfer of photos and video, especially as markets have become saturated.
It has estimated that the global online market will reach euro100 billion by 2010.
Nevertheless, Nokia unveiled new devices at its exhibition here, including more details about its new laptop, dubbed the Nokia Booklet 3G, which will ship in the fourth quarter of 2009 with Windows 7 and retail for euro575.
Made of aluminum, it sports a 10-inch (25-centimeter) screen and weighs 2.8 pounds (1.3 kilograms). That puts it squarely in the "netbook" category pioneered by Taiwanese manufacturers like AsusTek Computer Inc.
Unlike most netbooks, Nokia's Booklet will have a built-in GPS navigation chip coupled to Nokia's Ovi Maps software, and an aluminum cover in contrast to the usual plastic.
Nokia has previously tried to expand its portfolio beyond cell phones, making a "tablet" computer that runs non-Windows software. It hasn't been a mainstream success.
Nokia also unveiled a pair of new music phones, the X6 and X3.
The X6 features 32 gigabytes of memory, can play up to 35 hours of music and has a 3.2-inch touch-screen. It will retail for euro450.
The X3 is a more compact version that features direct access to Nokia's music store and features a built-in FM radio and 3.2 megapixel camera. It has a suggested retail price of euro115. Both devices are set to ship during the fourth quarter of 2009.