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The no-jobs economy: Why isn't the US recovery stronger?

Failure to reach at least a modest debt deal could signal to investors that the US government is in a state of chaos and uncertainty. That could make the nation's jobs problem still worse.

By Staff writer / July 10, 2011

People looking for jobs at an unemployment office in downtown Los Angeles. US unemployment edged up to 9.2 percent in June. Failure to reach at least a modest debt deal could signal to investors that the US government is in a state of chaos and uncertainty. That could make the nation's jobs problem still worse.

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The US economy generated only 18,000 new jobs in June, so few that the Labor Department on Friday described the nation's job count as "essentially unchanged."

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Why is the job market so weak? Is the economy at risk of a new recession?

Those questions loom large as President Obama and congressional leaders seek a deal to raise the limit on federal debt, while also restraining future deficits. Their stated goal is to put the government's own finances on sounder footing, but that issue is inextricably linked to the larger economy.

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"The economy has to support the government," says Peter Schiff, who heads the investment firm Euro Pacific Capital in Westport, Conn. "If consumers are broke ... then government is broke."

At present, consumers aren't quite broke, but they certainly aren't feeling flush with cash either.

A few days ago, Discover Financial Services announced that its "spending monitor" survey for June showed a significant slide in consumer confidence. Nearly 56 percent of adults said the economy is getting worse, up from about 51 percent in May and 40 percent in January.

The survey also found a majority saying their own personal finances are worsening, although only 17 percent said they expect to reduce their spending in July.

The consensus view among professional forecasters is that the economy will pick up some speed in the second half of the year and avoid a recession. But some believe a recession is very possible, even probable, by next year.

"The problem with a slow-growth economy that is basically at stall speed is, if there is any type of ... shock, the economy can easily tip over into recession," investment adviser John Mauldin, president of Millennium Wave Advisors, wrote in a recent newsletter.

One worry, for example, is that a cooling in the European economy, linked to the burden of a public-debt crisis in nations like Greece, could have negative ripple effects worldwide.

For the US, the patch of economic weakness comes two years after a deep recession officially ended, leaving unemployment today at 9.2 percent of the work force.

The challenge involves a mix of forces.

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