Job growth weighs heavily on U.S. economy

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Employment will weigh heavily on the U.S. economy this year, as adding jobs will be a key component of continuing down the path of economic growth, some analysts said.

With the jobless rate currently at 9.8 percent after several months of hovering stubbornly over the 9 percent mark, some analysts said the economy could sputter in the second half of 2011 if more jobs are not added.

Andrew B. Busch, global currency and public policy strategist at BMO Capital Markets, said that without a boost in employment, the U.S. economy will slide into perdition in the second half of this year, as more jobs must be added to continue the country's economic momentum.

"Without job growth you begin to create the conditions for a downward spiral of economic growth, as well as foreclosures and further unemployment," he said.

Such a scenario would play out like this: continued high unemployment leads to more home foreclosures, less demand and fewer consumers spending, leading to a pernicious cycle of more layoffs and more foreclosures.

In order to avoid that picture, more than 3 percent growth -- ideally above 3.5 percent -- is required to begin to significantly reduce the United States' high rate of unemployment.

That is the major reason why U.S. President Barack Obama and Congress agreed to extend the Bush-era tax cuts during December's lame duck session, setting aside the bitter rivalry so characteristic of their relationship over the last two years.

The package included a one-year payroll tax, which is the reason why most economists have revised upward their 2011 forecast from 2.5 percent growth -- the speed at which the economy would likely stall -- up to the 3 percent to 3.5 percent range, Busch said.

Busch expressed optimism about economic and job growth in the first quarter, but added the second quarter will see hurdles caused by the European debt crisis, as well as issues concerning the U.S. budget and debt ceiling.

The economy will face other strong headwinds -- the European debt crisis remains unsolved; home foreclosures continue to drag down the economy; and it remains unknown how much China will clamp down on inflation.

Ben Carliner, director of research at the Economic Strategy Institute, said the jobless recovery remains the key problem facing U.S. policy makers in the year ahead. From an economic perspective, this is the 'hangover' resulting from the years of easy credit that led up to the financial crisis.

While the shock of the financial crisis has now passed, with households, banks and corporations saving more and trying to pay down debts, the economy is suffering from insufficient demand. Until this deleveraging process plays itself out, companies will be reluctant to invest in new capacity or hire new workers, he said.

Other economists said that while the economy will add jobs this year, it will not be enough to significantly reduce high levels of unemployment, although 2012 could see hiring on a more significant scale.

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