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Jobless claims highest in 2 months

The number of Americans filing initial claims for unemployment benefits inched up again last week, an unsettling trend that economists say bodes badly for hopes that the labor market will turn around soon.

First-time applications rose by 3,000 to 422,000, the third week of increases and the highest figure in two months, according to seasonally adjusted statistics released yesterday by the U.S. Department of Labor.

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Consumer spending and other economic indicators paint a rosy picture of an improved economy, but experts say it won't have staying power if businesses don't start adding jobs.

Economists consider initial unemployment benefits claims above 400,000 a sign of a sick labor market, and they had expected improvements by now.

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"This is very bad news," said Anirban Basu, head of Optimal Solutions Group, an economic and policy consulting firm in Fells Point. "Americans can expect a rocky labor market throughout the balance of 2003 and unfortunately into 2004."

The most recent numbers are still better than those from the end of September 2001, when initial claims hit 528,000. But the recession officially ended that November, Basu said, and since then U.S. businesses have cut more than 1 million jobs.

"That's astonishing," he said. "It's not just a jobless recovery, it's a job-loss recovery."

Gary Burtless, an economist with the Brookings Institution, a Washington think tank, said he can't recall another recession after World War II that led to such a long downturn in employment.

The labor market's health could determine whether the president keeps his job in November 2004.

"It was precisely this lag period - this labor market lag period - that undid the first Bush presidency," Basu said. "His son is experiencing almost exactly the same situation."

As far as jobs go, the recovery this time is worse, Burtless said. But he thinks an important difference for President George W. Bush is that wages didn't keep up with the cost of living in the early 1990s and Americans were hit with a tax increase, so even people with jobs felt the pinch. This time, salaries are doing better and the federal government has cut taxes, he said:

"There is a silver lining in this dark employment cloud."

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John Lonski, chief economist with Moody's Investors Service, said the government has a good bit to do with the growth in consumer spending. Salaries grew by just 2.5 percent in July, compared with the year before, but after-tax disposable income grew by 5.2 percent, he said.

"It raises the possibility of the economy stalling as both the Federal Reserve and the federal government run out of stimulatory tricks," Lonski said.

That underscores the importance of the labor market and its ability to unravel efforts to improve the economy, said Oscar Gonzalez, an economist with John Hancock Financial Services. The more people without jobs, the fewer out spending.

Basu believes the most helpful step the government could take for the labor market would be to weaken the dollar, though he knows that's counterintuitive. A strong dollar that can buy more in the international market might be good for consumers, but it's bad for jobs because other countries won't be as likely to buy American products, he argues.

"Our manufacturing base is withering away," he said, "so our ability to generate income in the global marketplace is being lost. We seem to be consuming a lot - even in a bad economy, spending never really fell off - but at what cost? At a huge cost."


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