Jobs likely to dog U.S. presidential election

WASHINGTON???A majority of economists expect the national unemployment rate to stay above 6 percent ? the upper bounds of what's considered healthy ? for at least four more years.

If the economists are correct, the job market will still be unhealthy seven years after the Great Recession officially ended in June 2009. That would be the longest stretch of high unemployment since the end of World War II.

And it means the job market and the economy ? President Barack Obama's main political threats ? would remain big challenges in either a second Obama term or President Mitt Romney's first term.

"The election isn't going to be a miracle cure for the unemployment rate ? that's for sure," says Sean Snaith, an economics professor at the University of Central Florida. He says unemployment, 8.2 percent now, won't drop back to 6 percent until after 2016.

Economists consider a "normal" level to be between 5 and 6 percent.

The economists surveyed by Associated Press foresee an unemployment rate of 8 percent on Election Day. That would be the highest rate any postwar president running for re-election has faced.

The survey results come before the government reports Friday on hiring during June. Fears about the economy escalated after U.S. employers added just 69,000 jobs in May, the fewest in a year and the third straight month of weak job growth.

The survey collected the views late last month from 32 private, corporate and academic economists on a range of issues. Among their views:

? The economy will continue to grow only slowly. The average forecast for the April-June period is that GDP grew at an annual rate of 2 percent. That's down from a 2.4 percent forecast in April. The economists say the rate in the final six months of the year will be just 2.3 percent ? too weak to bring the unemployment rate down.

? Monthly job gains will average 139,000 the rest of this year, barely enough to keep up with population growth and prevent unemployment from worsening.

? A step Europe could take that would boost confidence in its financial system quickly would be a bailout program like the Troubled Asset Relief Program that Congress approved in 2008 to rescue U.S. banks after the financial crisis hit.

? The biggest threat to the U.S. economy is the tax increases and spending cuts that will take effect Jan. 1 unless Congress reaches an agreement. Many economists and the International Monetary Fund have warned that these measures would push the economy off a "fiscal cliff" and back into recession.

An unemployment rate of 5 to 6 percent is typical of a healthy economy. The rate usually doesn't fall much lower, in part because many people who leave a job or start looking for one after finishing school don't get one right away.

Most economists also say that if the Federal Reserve sought to lower unemployment much further, the economy could overheat and ignite inflation.

Beth Ann Bovino, deputy chief economist at Standard & Poor's, forecasts growth of about 2 percent this year and next. She doesn't think it will get much better before 2015.

"You need something closer to 4 percent to make a dent in unemployment," she said.

Consumers, businesses and governments are all cutting back on spending to reduce debts, Bovino said. That creates a vicious cycle: Less spending by consumers results in less revenue for companies. Businesses then reduce hiring. And that means fewer people with paychecks to spend.

And even if hiring picks up, several economists said the unemployment rate will be hard to bring down. That's because millions of Americans have given up looking for work and are no longer counted as unemployed.

Allen Sinai, chief global economist at Decision Economics, said the United States is in a squeeze: It needs to stimulate growth. Yet it also needs to rein in government spending and budget deficits over the long run.

"I don't envy the next president, whoever he is," Sinai said. "He is going to have one heck of a problem to fix."

Source: http://www.denverpost.com/nationworld/ci_21006609/jobs-likely-dog-election?source=rss

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