How Job Shortage Is Holding Back Economy

(Nov. 24) -- We know what the economy did last summer, and it wasn't that great. Though Americans were producing more goods and services than during the recession, new numbers from the government show a slower pace of growth than previously thought and suggest the dour job market could block a quicker revival.

The Commerce Department said real gross domestic product was growing at an annual rate of 2.8 percent for the third quarter to a market value of $14.266 trillion. That's still a good deal better than the 0.7 percent decline in U.S. economic output during the second quarter and the whopping 6.4 percent contraction in the first three months of the year. It's still the best quarter since summer 2007, half a year before the recession officially began.

But the government's initial estimate of third-quarter growth was a 3.5 percent rate. (A third estimate with an even closer look at the data comes late next month.)

There are two big factors for the revision. One was a bigger appetite for foreign goods and services by American consumers and businesses than originally reported. Imports are subtracted from GDP.

The more resonating reason: Consumers -- responsible for roughly a third of U.S. economic growth -- spent less than the government's economists first thought. Again, the numbers were much better than in previous quarters. Consumer spending was up 2.9 percent, compared with a decline of 0.9 percent in the second quarter. But the revised figures suggest Americans were less inclined to spend their way into faster growth, and the employment situation doesn't look set to encourage more spending.

The unemployment rate was 10.2 percent in October, a month that saw U.S. nonfarm payrolls shrink by 190,000 jobs. Banking and other business contacts of the regional Federal Reserve banks last month reported labor conditions as weak or mixed and wage pressures subdued, on top of weak consumer spending, according the Fed's regular Beige Book.

And the Fed's contacts noted that car sales -- a big sector of the U.S. economy despite the auto industry's travails -- was slowing following the boost it got from the "cash-for-clunkers" program that ended in August. The end of "cash-for-clunkers" could prove to be a decisive difference between the third quarter and the current period, since motor-vehicle output contributed more than half of the economic growth in the third quarter: 1.45 percentage points.

Another telling if often underreported number: The Fed's capacity utilization figure for October -- a measure of how much U.S. factories, utilities and mines are using their work force and facilities -- was just 70.7%. Compared with an average of 80.9% from 1972 through 2008, this suggests there are still plenty of jobs that can be cut.

We'll learn a lot more about the jobs-and-spending situation this week and next. The Fed is scheduled to release the minutes of its last interest-rate-setting meeting Tuesday afternoon, which will provide insight into the views of the nation's economic stewards. The Commerce Department is scheduled to release the latest report on personal income and spending on Wednesday. And on Dec. 4, the Labor Department will announce how hirings and firings affected the jobs market in November.