A spike in unemployment claims Thursday underscored the bumpiness of the economic rebound: Consumers are spending more. Factories are making more. But layoffs have not tapered off as fast as expected.
So can the recovery gather much steam if 17 percent of working-age Americans remain jobless or underemployed?
Employers have begun to add jobs recently, including 162,000 in March. Yet much stronger job creation is needed to ease the current 9.7 percent unemployment rate. And if layoffs were to spike and job creation sputter, the recovery could fall back into a "double-dip" recession.
The odds of that have receded as the economy has strengthened. But it can't be dismissed.
"It looks like we're on a path to moderate recovery and that the risk of a double-dip, while certainly not negligible, it is certainly less than it was a few months ago," Federal Reserve Chairman Ben Bernanke told Congress on Wednesday. "That being said, there are any number of possible things that could derail it."
At the top of Bernanke's risk list: Chronically high unemployment, which he said could cause consumers to spend less and weaken the recovery.
Economists think unemployment will probably remain above 9 percent by the November midterm elections, making Democratic and Republican incumbents in Congress vulnerable, particularly in hard-hit states. President Barack Obama is summoning top economic advisers for a meeting Friday to talk about creating new jobs, the White House said.
In its report on unemployment claims, the government said the number of newly laid-off people signing up for jobless aid last week surged 24,000 to a seasonally adjusted 484,000. That was the most since late February. Economists had predicted a drop in first-time claims.
It marked the second week that claims unexpectedly leaped. The government cautioned against reading much into the past two weeks' figures, saying they were skewed by seasonal adjustments related to Easter.
But some economists were disheartened by the report.
Mike Feroli, economist at JP Morgan Chase Bank, called the back-to-back increases "a clear disappointment" and "a puzzle against the backdrop of generally improving economic data."
One theory is that hiring is being held back by productivity gains. Companies are boosting production and meeting customer demand by squeezing more work from their existing staff. That means they can get by with fewer workers.
For all of 2009, workers' productivity grew 3.8 percent. It was the fastest pace in seven years.
If that pace of productivity growth were to persist, Bernanke said Wednesday, "there is a possibility — I wouldn't consider it the leading possibility — but there is a possibility that unemployment will stay stubbornly high, around 10 percent."
During the recession, companies slashed their payrolls. More than 8.2 million jobs were cut. Employers are loath to ramp up hiring until they see a big and sustained increase in sales. Yet few expect robust sales gains anytime soon.
Among the companies still cutting staff is American Electric Power Co. Inc., one of the nation's largest power generators. This week, it told employees it plans to trim its work force by up to 10 percent. It said it hopes between 1,000 and 2,000 of its nearly 22,000 employees will accept buyout offers.
Jobs cuts like those help explain why the unemployment rate has been stuck at 9.7 percent for three months, near its highest levels since the 1980s. Competition for job openings is fierce. Counting people who have given up looking for work and part-timers who would prefer to be working full-time, the so-called underemployment rate is 16.9 percent.
Bernanke noted that chronically high unemployment and weak job creation could further weaken consumer confidence. Shoppers would hold back on spending. A sharp retrenchment by consumers could throw the nation into a recession again.
So far, consumers have been holding up fairly well to the strains of high unemployment, stagnant wages and tighter credit. Sales at the nation's retailers grew a strong 1.6 percent in March, the government said Wednesday.
That and other reports this week added to evidence that the fledging recovery is gaining traction:
- Factory production accelerated in March, rising 0.9 percent, the Federal Reserve reported. That was a substantial improvement from the 0.2 percent increase logged in February, when snowstorms hit the East Coast and restrained production.
- The Fed also reported that the recovery is spreading to most parts of the country. Merchants are seeing better sales. Factories are boosting production. Still, many companies are wary of beefing up their staffs.
Even with the back-to-back spikes in jobless claims over the last two weeks, the trend in claims has been a slow drift down. First-time requests for jobless benefits peaked during the recession at 651,000 in March 2009.
Joel Naroff, president of Naroff Economic Advisors, said he had expected claims would be much lower by now — around 400,000 to 425,000 — and pointing toward a lower jobless rate.
"The labor market isn't necessarily deteriorating further, but it is not improving at the pace we hoped it would," he said.
The number of people continuing to draw unemployment aid also rose — illustrating how hard it is to find a job. Their numbers rose to 4.64 million from 4.57 million.
That figure does not include millions who have used up the regular 26 weeks of benefits typically provided by states and are receiving extended benefits for up to 73 more weeks. About 5.97 million people were receiving extended benefits in the week that ended March 27.
A bill restoring jobless benefits to people struggling to find work is on track in the Senate. The measure would prevent even more people whose 26 weeks of state-paid benefits have run out from losing an average of $335 a week in federally funded aid. The House would have to vote again on the measure after passing it last month.