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US recession may be easing, but job market weak

business Updated: Aug 01, 2009 12:58 IST

The American economy may be heading out of the woods with new government numbers showing signs of easing recession laying the groundwork for growth in the months ahead. But the job market still remains weak with working people haunted by fear of layoffs.

A Commerce Department reports on gross domestic product (GDP) Friday shows America's steep economic downturn eased in the spring, with economic output shrinking at a 1 percent annual rate in the April-through-June period.

That compares with a 6.4 percent rate of decline at the beginning of the year, itself a downward revision from the 5.5 percent decline originally reported for the first quarter.

The improvement came about in part due to an 11 percent boost in federal government spending, along with a more modest decline in exports, down 7 percent, compared with a 30 percent drop in the first quarter.

But the report also points to one of the key threats to expansion as it shows that consumers, who account for about two-thirds of economic activity, are still in lockdown mode, reluctant to make purchases.

The job market remains weak, and even those who still have work are fearful of layoffs and stung by lost stock market and housing wealth. A 1.2 percent drop in personal consumption expenditures underscores the situation in the second quarter, which occurred despite a tax cut.

New revisions to past data indicate that the economic output was weaker throughout the recession of the past 19 months than originally reported.

The Commerce Department had previously estimated that GDP, which captures the value of goods and services, produced within US borders, rose 1.1 percent in 2008. That was revised down to 0.4 percent.

Meanwhile, the International Monetary Fund said Friday the sharp contraction in the US economy "seems to be ending" but recovery will be slow with risks still looming from the weak labor and housing markets

In its annual report on the US economy prepared before release of US data, The IMF stuck to earlier forecasts that gross domestic product will shrink by 2.6 percent in 2009 and then rise by 0.8 percent in 2010.

"As a result of their increasingly strong and comprehensive policy measures, the sharp fall in economic output seems to be ending, and confidence in financial stability has strengthened," it said.

"Nevertheless, with financial strains still elevated, the recovery is likely to be gradual, and risks are tilted to the downside," it said.