Jobs Will Dominate 2011 U.S. Economic Landscape

No issue is expected to dominate the U.S. economic landscape in 2011 more than jobs.

Talk to any employer, policy maker or economist about the myriad problems that have made the U.S. recovery from the worst financial crisis in decades that much more difficult and – like some unavoidable force of gravity – the conversation inevitably leads to jobs.

Take housing, for example. Last week, data showed that home prices fell in 20 major metropolitan areas in October from September, marking the third straight month-over-month drop. The string of declines led some economists to predict another significant downturn in that important sector.

An analyst for Zacks Investment Research recently described the U.S. housing market as an “Achilles heel of the economy.” Housing has historically served as the “locomotive that pulls the economy out of recessions,” but this time around housing has been “derailed,” Zacks noted.

Investment in residential housing usually makes up about 4.5% of the economy, according to Zacks. That figure rose to 6.3% during the recent housing bubble, but had fallen to 2.2% during the third quarter of 2010. Meanwhile, new home sales -- an important economic bellwether -- have fallen to their lowest level in nearly five decades. The building and selling of each new home has a ripple effect throughout the economy because of the construction jobs involved and the amount of money that changes hands.

These numbers won’t improve unless Americans feel they have long-term job stability, said entrepreneur Anthony Hsieh, chief executive and founder of Irvine, Calif.,- based mortgage lender LoanDepot.

“It’s all about the employment market. And I’m not just talking about employment but stable employment,” said Hsieh.

If the job market doesn’t recover, Americans won’t have the income needed to start buying homes again at levels that will help breathe life back into that vital but struggling market.

Nine out of ten Americans who buy a home do so by borrowing via a mortgage, according to Hsieh, and “people need stable jobs in order to feel comfortable taking on that kind of debt,” he said.

And if the potential borrower doesn’t have a job it’s a moot point because the bank certainly won’t lend them any money, he added.

“At the end of the day, if you don’t have the income to support the debt you won’t get a lift in the (housing) market,” said Hsieh.

Some economists have expressed optimism that a cut in worker's Social Security taxes in 2011 could lead to added consumer spending, a necessary element if the economy is to expand next year. The employee tax break was an important component of the recent agreement that extended the Bush-era tax cuts for all Americans for another two years.

But even if the economy strengthens in 2011, as is expected, there is little hope that it will grow enough to make much of a dent in the 9.8% unemployment rate.

Most economists agree that the economy will need to grow by at least 5% for a full year to lower the unemployment rate by a full percentage point. Even if the economy grows at 4%, the figure many analysts are predicting, the jobless rate is not expected to fall below 9%.

The situation looked to be improving during the first half of 2010 as companies reported strong earnings and stock markets soared. But in the fall fears that a European debt crisis could spread across the Atlantic led businesses to scale back on spending and hiring.

In December, members of the European Union reached agreement on a permanent bailout facility, the European Stability Mechanism [ESM], to provide emergency loan assistance to countries such as Ireland, Portugal and Spain that are struggling to pay down their national debts.

Europe is one of the biggest customers for U.S. exports, receiving about 25% of all goods made in the U.S. and sold elsewhere. Any crimp in that market would prove devastating to efforts to create jobs in the U.S.

IHS Global Insight, an economic research firm, offered cautious optimism on the steps taken by Europe to contain its debt crisis, while noting that “differences” remain between those countries whose financial houses are in order and those whose aren’t.

“Nonetheless, the attainment of an EU consensus over the ESM is an important achievement and it is useful that the large Eurozone economies – Germany and France – are seeking to cooperate more closely over harmonizing tax and labor policies,” IHS said in a research note.

Tackling soaring budget deficits and scaling back on government spending has been a hot topic in the U.S., as well. Numerous states and municipalities are facing default and even bankruptcy as costs for services and public employee salaries and benefits have skyrocketed, leaving governments with no alternative but to raise taxes on already overburdened property owners.

With the 2010 U.S. deficit estimated at a record $1.5 trillion, a primary theme during the recent mid-term elections, in which Republicans who pledged austerity defeated scores of incumbent Congressional Democrats, was the need for a smaller government that spends less and is less intrusive into the lives of Americans.

But Congress’ commitment to austerity is uncertain.

A recent proposal drafted by a bipartisan committee established by President Obama to address the budget deficit recommended, among other things, dramatically reducing defense spending and raising the national retirement age. But the proposal was rejected because some on the committee said it went too far and others said it didn’t go far enough.

Craig Broswell, owner of Machinax Fabrication Inc., a Chino, Calif., machinery maker, said the government needs to focus on policies that create jobs rather than eliminate them.

“Government regulations are killing this nation,” he said.

For instance, in California companies that use gas or diesel forklifts are penalized if those machines don’t meet the state’s stringent smog requirements, said Broswell.

“They want you to use anything but gas or diesel fuel and they penalize you if you do. It costs me more money and that gets passed on to the end user who then passes it on to their customers,” he said.

Government should make its top priority creating jobs and keeping them in the U.S., said Broswell.

“If we can do that we should be OK,” he said.