WASHINGTON – A surprising dip in the U.S. unemployment rate provides another strong indication the recession has hit bottom, but analysts warned it will take months for the economy to climb out of its deep hole.
The surprising drop in the jobless rate to 9.4 percent in July came as the nation lost 247,000 more jobs that month, bringing the total since the recession began to 6.7 million.
But July’s losses were fewer than expected, and a far cry from the 645,000 job losses the economy averaged from November 2008 through April 2009.
Economists were encouraged that the jobless rate now has remained essentially flat for three months. The new figures prompted a fresh rally on Wall Street and followed recent indications that the worst of the recession is over, with Gross Domestic Product and home sales numbers improving.
Some economists were forecasting growth beginning again in the second half of 2009.
“The dawn of an economic recovery is here,” said Sung Won Sohn, an economist at California State University, Channel Islands. “The sharp contraction in employment has moderated, pointing to the end of the recession.”
Friday’s decrease from 9.5 percent in June – the first drop since early 2008 – came because job cuts slowed in some industries, including manufacturing, while the auto industry saw fewer layoffs than anticipated.
But the Labor Department said there was a downside to the auto industry’s increase of 28,000 jobs – “previous cuts had been so extensive that there were fewer workers to lay off during the seasonal shutdown.”
Unemployment continues to be a problem, and the rate probably will rise again before job creation starts sometime in 2010, economists said.
Although the job losses are continuing and are predicted to continue into next year, the pace has slowed considerably. The economy lost 443,000 jobs in June, revised from an earlier estimate of 467,000.
“The huge increases are now behind us,” said Nigel Gault, chief U.S. economist for IHS- Global Insight, who had forecast the rate to hit 10.3 percent but may revise that downward. “We’re in the process of beginning to flatten out here.”
That means the number of unemployed people will continue to increase from the current 14.5 million, as well as the 8.8 million underemployed Americans who have been forced to settle for part-time jobs.
About 9 million people now rely on unemployment benefits to pay for housing, food and other basic needs. And for many of them, unemployment checks may be running out.
For about 540,000 long-term unemployed people, the checks will stop coming in September, according to the National Employment Law Project, a Washington group that advocates for low-wage workers.
A million more could be in the same boat by year’s end, unless Congress authorizes another unemployment benefits extension, the fourth in a prolonged 21-month recession.
President Barack Obama touted the latest positive economic indicator as a sign his administration’s policies, including the $787 billion stimulus package, had helped rescue the economy from “catastrophe” while starting to “build a new foundation for growth.”
But he said the continued job losses still needed to be addressed.
“As far as I’m concerned, we will not have a true recovery as long as we’re losing jobs, and we won’t rest until every American that is looking for work can find a job,” Obama said.
Other signs of economic trouble remain. Retail sales are on track to drop for the 11th straight month in July. And high unemployment remains a major impediment to a recovery.
With so many Americans still out of work, the Obama administration and Congress are considering acting again to extend unemployment benefits.
States pay for standard unemployment benefits, generally offering 26 weeks of checks. But in dark economic times, the federal government often pays to extend them. Workers in states with high unemployment now are eligible for up to 79 weeks of benefits.
In September, the House of Representatives will take up legislation to continue the federal extensions through 2010 and provide an additional 13 weeks for 20 states with an average unemployment rate of at least 9 percent over the previous three months.