President Barack Obama mentioned jobs 34 times in his State of the Union address. Mitt Romney and Newt Gingrich both have “jobs” or “jobs and the economy” listed on their web sites as the first of the issues they address.
No surprise, then, that jobs and the economy are going to be among the most critical issues in the presidential election this fall and could determine the eventual winner. And the news Friday (Feb. 3) on the nation’s jobs and unemployment picture likely means that the debate on the 2012 economy is now beginning.
Round one goes to Obama. The Bureau of Labor Statistics' report on Friday showed that total nonfarm payroll employment rose by 243,000 in January, and the unemployment rate decreased to 8.3 percent from 8.5 percent in December. “Job growth was widespread in the private sector, with large employment gains in professional and business services, leisure and hospitality, and manufacturing. Government employment changed little over the month,” the BLS said.
That’s good news for the Obama campaign, though there are numbers in the report that point to the tasks still ahead for the economy. There are 12.8 million still unemployed. The number of persons employed part time for economic reasons was 8.2 million, little changed from a month ago. There are still 2.8 million “marginally attached” to the labor force, essentially unchanged from a year ago.
The state Economic and Revenue Forecast Council, which met Thursday in Olympia, had an interesting number in its report that points to the continuing difficulties in the economy: Real gross domestic product, the sum of all the goods and services in the economy, is now above its pre-recession peak, but it is being produced with 6.2 million fewer jobs.
What’s ahead? Here are 10 questions about the economy in 2012.
1. Will the economy continue to expand? Yes, but. Yes, the economy should continue to post very modest growth for 2012, perhaps about 2 to 2.5 percent or so on average for the entire year. The “but” comes from a number of what economists call externalities — unknown events that might happen that could affect the economy.
The list of worrisome externalities is substantial — the fate of the euro; European debt, especially that of Greece, Spain and Italy: a European recession (which seems likely now); slower growth than expected in China, India, and Brazil, another round of weather-related disasters; and congressional inaction on a number of pressing issues, including the pre-programmed fiscal tightening that grew out of the budget battles last year. The Organization for Economic Co-operation and Development (OECD) in Paris, which monitors major industrial countries, said inaction “could tip the economy into a recession that monetary policy can do little to counter.”
The OECD puts economic growth in the U.S. at 2 percent for 2012 and 2.5 percent for 2013. And there does not seem to be anything on the horizon to boost those growth prospects, especially in an election year. The Blue Chip Consensus, used by the state for its forecasting, puts growth at 2.2 percent and 2.6 percent for 2012 and 2013.
2. What about the economy and President Obama? A mixed bag but on the whole positive. Most attention in the presidential races falls on the unemployment rate — it is something that most of us can understand and grasp as a good indicator of where things stand. The strong report Friday was good for the Obama camp, but the economy is only just beginning to grow fast enough to do much about replacing the jobs lost during the steep recession that was ending just as he came into office. There now have been two months with job growth of 200,000 or more, but the six-month average is about 150,000, enough to handle demographics, which requires about 125,000 jobs a month to accommodate new entrants to the work force, but barely enough to help the long-term unemployed.
The way unemployment is figured, the unemployment rate could actually rise in early 2012, because more people will be encouraged to re-enter the work force. With sluggish growth in jobs, more people in the work force looking for still scarce jobs would push the overall rate higher. But if the economy is on track to grow in 2012, even slowly, that growth should be fairly solid by fall, which will be a positive for the president. If the growth falters, as it did in 2011, then things could get interesting.
3. So why hasn’t the economy responded? Several factors are at work. One, the recession that developed in 2007 was the worst since the Great Depression in the 1930s. It would take the economy a while to recovery from that recession even if the recovery were “normal.” But the recovery was not normal. For one thing, housing and commercial construction usually kick in after a recession trying to fulfill any pent-up demand caused by the recession. But this time, housing was a big part of the recession in the first place as the mortgage bubble collapsed, flooding the market with millions of homes at substantially lower values.
Many people have much of their net worth tied up in their homes. And with values still disappearing, many people are reluctant to spend.The report out last Tuesday (Jan. 31) reflects that fact — the S&P/Case-Shiller Home Price Index for the Seattle metropolitan area, which includes King, Snohomish and Pierce counties, showed home values declining in November, to a low point since the recession began. Housing here declined 31 percent from the peak in 2007. Homes in the United States were expected to lose more than $681 billion in value during 2011, which is 35 percent less than the $1.1 trillion lost in 2010, according to recent analysis by the Zillow Real Estate Market Reports. And don’t expect things to improve soon. Zillow also forecast another slight decline in home prices this year, with some improvement beginning in 2013. Here’s the reality: A Zillow survey of experts said the consensus is that home prices will be just 9 percent higher than they are today at the end of 2016.
4. What are the positives? Generally speaking, people are more positive about the economy, though still far from confident in its future course. Consumer sentiment is improving. Manufacturing is fairly solid with the Boeing Company a good part of that. Housing starts are picking up a bit, though mostly in the multi-family segment as builders try to tap into the rental market. But that industry is famous for overbuilding and likely will slow later this year as the market becomes more saturated. The double-dip recession that was feared last fall when the economy slowed seems much less likely now.
5. What are the negatives? Unemployment. There remains a large overhang of workers who cannot find jobs, are accepting jobs at lower pay, are taking part-time jobs, or have just given up. Portions of the economy also are suffering more than others. The University of California at Berkeley Labor Center said recently that black unemployment is worse now than it was two years ago. According to the report, the black unemployment rate is higher now than at the official end of the recession in June 2009. That unemployment rate then was 14.9 percent. It stood at 15.8 percent at the end of last month.
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