__ Businesses are reporting solid profits and stockpiling cash. Corporate earnings rose nearly 28 percent in the third quarter from a year earlier, the government says. And companies amassed a record $1.84 trillion in cash as of June 30, according to the Federal Reserve. That was 18 percent more than a year earlier. Eventually, companies will use some of that money to hire and expand, which should help stimulate the economy.
That would help the economy maintain its recent momentum. The economy had begun flashing signs of strength late last year, only to falter in the spring and summer this year. The latest evidence could signal a resurgent economy that's gaining traction.
Even as unemployment remains at a crisis level, some encouraging signs about hiring have emerged: The private sector has added jobs for 11 straight months. The overall number each month hasn't looked so good because of job cuts by financially ailing state and local governments.
Small businesses appear to be a particular bright spot. A report by the staffing firm Automatic Data Processing found that businesses with fewer than 500 employees have added 390,000 jobs this year, including 91,000 in November.
"The virtuous cycle of more jobs creating more income creating more spending creating more jobs is still turning," says Jerry Webman, chief economist for Oppenheimer Funds.
Not quite fast enough, though. Unemployment could soon rise above November's 9.8 percent rate, especially if an improving economy causes more out-of-work people who aren't looking for jobs to start. People out of work aren't counted as unemployed unless they're looking for a job. Typically during a recession, some of the unemployed become discouraged and stop looking.
One industry where they may not find a job for a while is real estate. Since the industry bubble burst three years ago, about 2.8 million real estate-related jobs have vanished. Until those people — ranging from builders, architects and appraisers to lenders and furniture sellers — find new work, the unemployment rate isn't likely to dip much below 8 percent, economists say.
Real estate in many areas remains depressed. Home prices are being weighed down by sluggish demand, high foreclosures and a huge overhang of unsold houses. Many would-be buyers fear prices may fall further. Some also can't sell their home to upgrade to a larger one because they've lost equity or they can't find prospective buyers.
The economy isn't likely to get any new help from Washington. Lawmakers in a lame-duck session of Congress appear headed for an agreement on legislation that would combine an extension of tax cuts with a renewal of benefits for the long-term unemployed. But no new stimulus spending is likely.
Benefits for the long-term unemployed expired Nov. 30. Two million unemployed people will lose their benefits by year's end unless Congress acts to extend them. The benefits can last for up to a record 99 weeks: 26 weeks of regular benefits from the states, plus up to 73 weeks of federal aid in states with high unemployment rates.
Some economists also favor a one-year suspension of taxes on workers and employers for Social Security and government health care. Yet prospects for such a proposal are dim.
Even so, O'Sullivan and other economists are convinced that signs the economy is strengthening, however slowly, outweigh the discouraging jobs report the government issued Friday.
"The financial system has been recovering, with the credit crunch thawing," he says. "Businesses have already stepped up investment in equipment and software sharply and employment growth modestly . We believe the pluses will ultimately dominate."
Yet even he thinks unemployment will remain the economy's Achilles' heel: Like many economists, O'Sullivan foresees unemployment of at least 9 percent until well into next year.
