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Unemployment Plateaus, But So Has Consumption

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Unemployment is keeping people from spending, but employers won't hire if consumers don't spend.

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Don't look for an economic turnaround in your Christmas stocking this year.

The pace of US job cuts has slowed, but hiring hasn't resumed, two surveys released Wednesday show.

Challenger Gray & Christmas, a Chicago-based executive placement firm, says planned layoffs fell 72% in November to 50,349 from 181,671 for the same month a year ago.

ADP Employer Services says US companies slashed an estimated 169,000 jobs in November, down from 195,000 in October.

But fewer planned or actual job cuts than previous months doesn't signal a turnaround in the job market and job losses will almost certainly extend into next year.

"Layoffs are coming to an end, but companies haven't starting hiring," says David Wyss, chief economist at Standard & Poor's. "We need to see confidence in the economy. Employers will check retail sales during the holiday season and the recent increase in home sales before they start hiring. We're not in a recovery until the jobs numbers turn positive."

This creates a chicken-or-the-egg conundrum for the economy: People won't spend as long as employment is weak and the housing market is uncertain, but employers won't hire as long as consumer spending is weak.

There's no booster shot of confidence coming soon.

The US Labor Department is scheduled to release its employment survey on Friday. Analysts expect the report to show that the economy lost about 120,000 jobs in November, down from 190,000 in October. The unemployment rate now stands at 10.2%, the highest in 26 years.

In November, the National Association of Realtors, a trade organization based in Washington, said sales of existing houses rose 10.1% in October to a 6.1 million annual rate from a 5.5 million rate in September. Increased sales were prompted, in part, by a tax credit that drew first-time buyers into the market.

While November's sales were at the highest pace since February 2007, it's uncertain that strong sales will continue when the incentive ends next April. Congress acted to extend the credit, originally set to end November 30, but reduced the amount by $1,500 to $6,500

Increased sales are offset by continued struggles among existing owners to make mortgage payments. The Mortgage Bankers Association says delinquencies continue to increase and a record 14% of homeowners were behind on mortgage payments or in foreclosure in September. The hardest hit states are Arizona, California, Florida, and Nevada which together accounted for 43% of the new foreclosures.
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