Fragile Recovery Depends on New Jobs - New Jobs Depend on Increased Consumer Spending

The biggest question looming over the economy is whether it will start to create enough jobs this year to keep the fragile recovery going.

Although the job market has steadied and is showing a dramatic improvement from early 2009 — when more than 700,000 jobs per month were disappearing — some analysts worry about a relapse into recession by the end of the year because of a lack of income and jobs that would prevent consumers from making steady gains in spending.

Economists generally expect the economy to plod forward and job growth to trickle back, replacing the drumbeat of job losses each month that has marked the worst two years for workers since the Great Depression. Job cuts dwindled to about 70,000 a month at the end of last year.

"I think we are on a path of … steady progress," Christina Romer, who heads President Obama's Council of Economic Advisers, said Sunday on ABC's "This Week."

"If you look at basically every forecast, they are saying steady GDP growth over 2010," Mrs. Romer said. "The real question is going to be: Is it going to be strong enough to really add a lot of people back into employment? And that is what we are focusing on. … That's got to be the top priority."

David Wiedemer, chief economist for the Foresight Group, a consulting firm in Herndon, Va., said economists are being overly optimistic about job growth. He said they are not taking into account the extraordinary damage caused by the collapse of multiple investment bubbles in technology, stocks, housing and credit in the past decade, which have called into question whether the economy can ever again experience the same kind of growth in spending and jobs driven by easy credit.

"Unemployment does not reverse itself simply because a certain amount of time has passed," he said. "We expect unemployment to continue to rise because the conditions necessary for job creation do not exist and will not exist for quite some time. There have to be reasons for significant job growth, and those reasons simply are not there."

Employers are looking for a lasting revival of consumer demand before they increase hiring. American consumers, who powered the engine for economic growth in the U.S. and around the world for decades, have retrenched in the face of the severe recession. The U.S. economy has lost nearly 8 million jobs, with fears of more to come.

Instead of spending freely, consumers are building cushions of savings and are facing the deepest cuts in decades in all kinds of credit, from home equity loans to credit cards, economists say.

That means spending can accelerate only if jobs and wages — the main source of income for the majority of consumers — are revived. The smattering of growth at the end of last year — including a surprise spurt of 4,000 jobs created in November — was driven largely by government spending and borrowing, which has merely replaced spending and borrowing by the overstretched consumer, Mr. Wiedemer said.



Washington Times