Rising Unemployment

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[View Slide Show: Global Gloom A brief flowering of hope that US consumers might be ready to shop more vigorously rapidly faded under the cold reality that rising joblessness and falling wealth mean retailers face bleak prospects. A surprise climb in US retail sales during January, reported by the government this week, snapped a six-month losing streak, temporarily raising optimism that consumers might bring their buying power back to a recession-ridden US economy. But analysts said the report was riddled with anomalies and that a fundamental turnaround in buying was unlikely as long as the US housing sector spirals downward, unemployment keeps rising and incomes are pinched. &quot;The big picture has not improved. The most important determinant of consumption going forward is the labor market and we see that is not improving, but continuing to deteriorate,&quot; said Harm Bandholz, economist at UniCredit Markets and Investment Banking in New York. Retail sales rose 1.0 per cent in January, posting the biggest monthly increase since November 2007, after falling 3.0 per cent in the prior month, Commerce Department data showed. Analysts said sales were probably pushed up by post-holiday discounts, with seasonal factors also coming into play. &quot;What you saw was a lot of gift card purchases, things of that nature that were purchased in December but aren't accounted until they are actually expensed,&quot; said Steven Ricchiuto, chief economist at Mizuho Securities in New York. &quot;We need to see a bottoming in housing because that will lead to a broader based adjustment in consumer spending. What we are seeing right now is a dramatic consolidation in consumer spending.&quot; Doubts Over Auto Sales Analysts also questioned the rise in motor vehicle sales, given that automakers reported sales plunging to 27-year lows in January. The Commerce Department said motor vehicles and parts sales surged 1.6 per cent in January, the biggest monthly rise since September 2007, after slipping 2.0 per cent in December. &quot;I don't think households really bought more cars in January. Car dealers tried to slash prices or offer some incentives, but this is reducing the prices and therefore weigh on the nominal amount,&quot; said UniCredit's Bandholz. A relentless tide of job losses, coupled with the collapse of the stock and housing markets, has severely reduced household wealth. A study by the Federal Reserve of US family finances released on Thursday estimated mean family net worth fell by 22.7 per cent in the past year. With the unemployment rate at 7.6 per cent and expected to rise well into 2010, analysts said consumer spending was unlikely to improve much, even when the effects of the Obama administration's $787 billion package of tax cuts and spending kick in later this year. &quot;Consumption and retail sales will continue to decline through the middle of the year. I don't expect any big increase in private consumption or retail sales in the second half,&quot; said Bandholz. &quot;I see some stabilization or some mild increase at the end of 2009, mostly related to the stimulus.&quot; And if the findings of the latest Reuters/University of Michigan Surveys of Consumers are anything to go by, spending might remain depressed for a while as households worry about the general health of the economy. The survey found nearly two-thirds of respondents anticipated the current downturn would last five more years. But still some economists are cautiously optimistic and reckon consumers cannot continue to hold back much longer. &quot;It is possible that consumers are slowing down their pace of spending declines. In fact consumer spending may actually bottom in the first quarter,&quot; said Cary Leahey, an economist at Decision Economics in New York. Leahey said recent batches of reports on existing home sales, factory activity and services sector have been encouraging and suggested that things might not be as bad as they appeared to be. &quot;It has paid to be pessimistic in the last year-and-a-half, so a lot of people are remaining pessimistic,&quot; he said. &quot;With a big kick from the stimulus, it's not outrageous to think GDP may claw to a zero kind of number in the second quarter unless things are a lot worse in the banking system than most people think.&quot; However, Leahy said it was important to see spending on durable goods rising for three straight months before calling a turnaround in retail sales. (Reuters)