Economy Survey: Steady job gains to sustain U.S. recovery Unemployment rate expected to drop below 8 percent by Election Day

By Paul Wiseman AP Economics Writer WASHINGTON (AP) -- Hiring through the rest of 2012 will lag the brisk pace set early this year. But it will be strong enough to push the unemployment rate below 8 percent by Election Day. That's the view that emerges from an Associated Press survey of 32 leading economists who foresee a gradually brighter jobs picture. Despite higher gas prices, Europe's debt crisis and a weak housing market, they think the economy has entered a "virtuous cycle" in which hiring boosts consumer spending, which fuels more hiring and spending. The survey results came before a report Friday on hiring during April. The Labor Department reported Friday that U.S. employers added just 115,000 jobs in April. That was below March's revised number and well off the pace from earlier this year. The unemployment rate fell to 8.1 percent, a three-year-low, but only because more people gave up looking for work. The government only counts people as unemployed if they are actively looking for work. But the economists think the recovery will manage to reduce unemployment to 7.9 percent by Election Day from 8.2 percent in March. Falling unemployment would boost President Barack Obama's prospects in November. Going back to 1956, no president has lost re-election when the unemployment rate dropped in the two years before the election. And none has won when the rate rose over that time. Unemployment was 9.8 in November 2010. If the surveyed economists prove correct, the rate will be nearly 2 percentage points lower when Americans vote on Nov. 6. Yet the AP economists think it will be at least three more years before unemployment falls below 6 percent, which would be a sign of a healthy economy. They predict the economy will grow 2.5 percent this year, up from 1.7 percent in 2011. In a healthy economy, 2.5 percent annual growth is usually adequate. Not so when 12.7 million people are unemployed. The economy would have to grow about 4 percent for a year to lower unemployment another percentage point. The economists expect job growth to average 177,000 a month from April through June and 189,000 in the second half of the year. That would be down from an average 212,000 jobs added monthly from January through March. Last year, job growth averaged 158,000 a month. "The job market is improving enough that consumer spending can grow at a moderate pace as opposed to an anemic pace," says Phillip Swagel, a University of Maryland economist. "Businesses are finally confident enough to hire and invest." The AP survey collected the views late last month of private, corporate and academic economists on a range of indicators. They expect Europe to avoid a severe downturn this year even though it's struggling with a debt crisis and is likely in a recession. And most don't think any European nation will default on its debt this year. But they worry that the lingering effects of the housing bust are slowing the U.S. economy's expansion. The AP economists say growth can't accelerate until national home prices -- which dropped for a sixth straight month in February -- finally bottom. Falling house prices can slow numerous sectors of the economy. They demoralize consumers by eroding their chief source of wealth. A 30 percent drop in housing prices has vaporized $7 trillion in home equity since 2006. Some of the economists fear that the financial crisis and recession left lasting consequences. Among their concerns: Growth will remain slow as consumers pare debts. The long-term unemployed will struggle to regain jobs. People will no longer see housing as a source of wealth. And many will lose faith in the idea that Americans can achieve rising living standards. One sign of the still-tough job market is long-term unemployment: Forty-three percent of the unemployed -- 5.3 million Americans -- have been out of work six months or more. Most of the economists blame weak customer demand. Only about a third think the main reason is a mismatch between the skills workers have and the skills employers need. The unemployed might not get much relief from manufacturers, despite a report this week that U.S. factory activity grew last month at the fastest pace in nearly a year. The economists think manufacturers, a key source of hiring during the recovery, will fill jobs more slowly the rest of the year. If so, that could slow overall job growth. Another factor in the economists' cautious view of hiring: political bickering and doubts about government policies in an election year. "There's still a ton of uncertainty about the future of tax and regulatory policy," says Swagel, a Treasury Department official under President George W. Bush. "Business that might be tempted to expand say, 'I don't know what my taxes will be in three years.' " Published: Mon, May 7, 2012