Economic optimism climbs

Experts say growth differs from 2011's
People fill out forms for employment interviews at a job fair in Bell, Calif. In one sign of growth in the U.S. economy, California's unemployment rate fell below 11 percent in January for the first time in nearly three years.

WASHINGTON — Haven’t we seen this before?


Companies are generating waves of jobs, and unemployment is down. The same thing happened last year around this time. Then everything faded to black.

Does a happier ending await the job market this time? Economists seem to think so.

“The internal dynamics of the U.S. economy look pretty good right now,” says Bill Cheney, the chief economist at John Hancock Asset Management.

U.S. employers added 227,000 jobs in February, the third consecutive month of 200,000-plus job growth. The unemployment rate remained 8.3 percent, but it was 9 percent as recently as September. By all measures, the job market is strengthening by the month.

Then again, the numbers can conjure a sense of déjà vu. Last year, the job market had a similar three-month run. From February through April, the economy added an average 239,000 jobs each month. Yet just as things were perking up, a freeze descended on the economy and job market.

Here are seven reasons economists say the job market appears on surer footing this time:

• Companies can’t squeeze more from workers. During and right after the Great Recession, companies shrank their work forces because demand plunged and fewer workers were needed. Once demand started growing again, companies were reluctant to hire immediately. But many companies are finding they can’t continue to do more with less. As demand grows, they’re finding they have to hire.

• Consumers are sturdier. Since the recession, households have cut their debts and rebuilt savings. One key measure of household debt burdens – debt payments as a percentage of after-tax income – is at its lowest point since 1994, according to the Federal Reserve.

“Consumer finances are fundamentally healthier than they were,” said Stuart Hoffman, the chief economist at PNC Financial Services Group.

As the labor market has healed, Ameri­cans have worried less about losing their jobs. As a result, they’re less likely to curtail spending.

• Tensions ease in Washington. The debt-limit showdown last summer rattled confidence in America’s leadership. It looked as if the United States might default on its debts for the first time in history. Since then, thanks in part to election-year pressures, tensions have eased. Republicans dropped threats to let the payroll tax expire. And in an unusual show of cooperation, House lawmakers from both parties backed a bill last week to make it easier for small businesses to obtain financing they need to hire and expand.

• Housing is inching back. The collapse of real estate lies at the heart of America’s economic problems. Home prices have plunged 30 percent since 2006. The drop has wiped out $7 trillion in homeowners’ equity. Millions of construction workers have lost jobs.

Now, there are tentative signs of recovery. Apartment construction is growing. Construction jobs are slowly returning. Home builders are seeing more foot traffic and gaining confidence that sales will pick up in the spring.

No one expects another boom, but real estate is no longer subtracting from U.S. employment. There’s hope among economists that higher sales could stop prices from falling further by spring.

Once home prices stabilize, more people likely will decide it’s time to buy. Consumers who worry less about a loss of home equity – the main source of wealth for most people – are more likely to keep spending.

• State and local government cuts slowing. The Great Recession and the housing collapse dried up tax revenue for state and local governments. Many were forced to lay off teachers and other public workers. Since December 2008, state and local governments have slashed 613,000 jobs, offsetting some of the hiring by private companies.

But the cuts appear to be easing. State governments have added 10,000 jobs this year. Local governments last month added 2,000 – a modest total but only the third increase in two years.

“There’s only so many teachers you can cut, so many police officers, so many firemen,” said Mark Vitner, a senior economist at Wells Fargo Economics.

Europe’s threat has subsided. In­ves­tors panicked last year over the prospect that Greece and other European countries would default on debts, stick banks with huge losses and trigger a global credit crunch.

Greece now has received a $172 billion bailout, pushing back the threat of a destructive default. And the European Cen­tral Bank has made more than $1.3 tril­lion in low-rate three-year loans to banks since December, making clear it won’t let the European banking system fail.

• U.S. banks lending more to businesses. After the September 2008 collapse of Lehman Brothers shook the financial system, U.S. banks cut loans to businesses in 2009 and 2010. The credit crunch fed the economy’s misery by starving many companies of financing needed to grow and hire.

But banks are healthier now. So are the prospects for their business customers. Bank lending to businesses rose nearly 14 percent last year to $1.35 trillion, according to the Federal Deposit Insur­ance Corp. Loans to small businesses grew at the end of last year for the first time since the FDIC started tracking them nearly two years ago.

William Dunkelberg, the chief economist of the National Federal of Independent Business, says the outlook for hiring by small businesses offers “a better picture than we have seen for years.”

Economists are still cautious. A shock like the Japanese quake or further Middle East turmoil could always reverse the gains. Ever-higher oil prices would hurt, too. And even with the improvements, the recovery from the 2007-09 recession remains weaker than past recoveries.

But economists say the job market has likely gained enough momentum to avoid a repeat of mid-2011’s gut-churning drop.

“This year will not be the same,” PNC’s Hoffman says. “We won’t be sitting here in six months saying, ‘Uh-oh, it was another false dawn.’”