Here’s the assignment President Barack Obama has won with his re-election: Improve an economy burdened by high unemployment, stagnant pay, a European financial crisis, slowing global growth and U.S. companies still too anxious to expand much.
And, oh yes, an economy that risks sinking into another recession if Congress can’t reach a budget deal to avert tax increases and deep spending cuts starting in January.
Yet the outlook isn’t all grim. Signs suggest that the next four years will coincide with a vastly healthier economy than the previous four, which overlapped the Great Recession.
Obama has said he would help create jobs by preserving low income tax rates for all except high-income Americans, spending more on public works and giving targeted tax breaks to businesses.
He used his victory speech in Chicago to stress that the economy is recovering and promised action in the coming months to reduce the government’s budget deficit, overhaul the tax system and reform immigration laws.
“We can build on the progress we’ve made and continue to fight for new jobs and new opportunity and new security for the middle class,” Obama said.
The jobs picture has already been improving gradually. Employers added a solid 171,000 jobs in October. Hiring was also stronger in August and September than first thought.
Cheaper gas and rising home prices have given Americans the confidence to spend slightly more. Retailers, auto dealers and manufacturers have been benefiting.
That said, most economists predict the improvement will remain steady but slow. The unemployment rate is 7.9 percent. Obama was re-elected Tuesday night with the highest unemployment rate for any incumbent president since Franklin Roosevelt.
Few think the rate will return to a normal level of 6 percent within the next two years. The Federal Reserve expects unemployment to be 7.6 percent or higher throughout 2013.
Economists surveyed last month by The Associated Press said they expected the economy to grow a lackluster 2.3 percent next year, too slight to generate strong job growth. From July through September, the economy grew at a meager 2 percent annual rate.
Part of the reason is that much of Europe has sunk into recession. Leaders there are struggling to defuse a debt crisis and save the euro currency. Europe buys 22 percent of America’s exports, and U.S. companies have invested heavily there. Any slowdown in Europe dents U.S. exports and corporate profits.
And China’s powerhouse economy is decelerating, slowing growth across Asia and beyond.
Most urgently, the U.S. economy will fall over a “fiscal cliff” without a budget deal by year’s end. Spending cuts and tax increases that would total about $800 billion in 2013 will start to kick in. The combination of those measures would likely trigger a recession and drive unemployment up to 9 percent next year, according to estimates by the Congressional Budget Office.
Many U.S. employers are wary of expanding or hiring until that potential crisis is averted. That’s why analysts have said resolving, or at least delaying, the fiscal cliff should be the most urgent economic priority for the White House.
In the longer run, analysts are more optimistic. Americans are feeling generally better about the economy. Measures of consumer confidence are at or near five-year highs.
And the main reason unemployment rose from 7.8 percent in September to 7.9 percent in October was that more people felt it was a good time to look for work. Most found jobs. Those who didn’t were counted as unemployed. (The government counts people without jobs as unemployed only if they’re looking for one.)
A brighter outlook among consumers is due, in part, to a steady increase in home prices after a painful six-year slump. Higher home prices can help create a “wealth effect,” making homeowners feel richer and spurring more spending.
Banks are also more likely to lend freely when home prices rise because homes are more likely to hold their value.
Americans have also been shrinking debts and saving slightly more. Household debt as a percentage of after-tax income dropped from about 125 percent before the recession to 103 percent in the April-June quarter, according to the Federal Reserve’s latest data. That ratio was roughly 90 percent in the 1990s.
But thanks to record-low interest rates, the cost of repaying those debts has dropped sharply. That, in turn, will free up more money for consumers to spend on cars, appliances and other goods.
Americans paid 10.7 percent of their after-tax income in interest on mortgages, credit cards and other consumer debt in this year’s April-June quarter, according to the Fed. That was down from 14 percent at the end of 2007. And it’s the lowest proportion since 1993.
“That’s 3 percentage points of disposable income that I am no longer using to pay for stuff that I bought earlier but I can instead use to buy stuff now,” noted Alan Levenson, chief economist at T. Rowe Price.
Economists note that economic recoveries after financial crises tend to be painfully slow. In part, that’s because time is needed for consumers to reduce debts and for banks to recover and lend again.
Paul Ashworth, an economist at Capital Economics, noted that banks have boosted lending for the past 18 months — another sign that the passage of time is helping the economy rebound.
Obama “is going to have an easier time of it ... because we’re further along the road to recovery after the financial crisis,” Ashworth said.
- Headline News
Starved Pennsylvania 7-year-old weighed only 25 pounds
A 7-year-old Pennsylvania boy authorities described as being so underweight he looked like a human skeleton has been released from the hospital.
U.S. outlines case against Russia on downed plane
Video of a rocket launcher, one surface-to-air missile missing, leaving the likely launch site. Imagery showing the firing. Calls claiming credit for the strike. Recordings said to reveal a cover-up at the crash site.
'Maverick' star James Garner, 86, dies in California
Actor James Garner, whose whimsical style in the 1950s TV Western "Maverick" led to a stellar career in TV and films such as "The Rockford Files" and his Oscar-nominated "Murphy's Romance," has died, police said. He was 86.
Given life term, drug offender hopes for clemency
From the very start, Scott Walker refused to believe he would die in prison.
Arrested and jailed at 25, then sent to prison more than two years later, Walker couldn’t imagine spending his life behind bars for dealing drugs. He told himself this wasn’t the end, that someday he’d be released. But the years passed, his appeals failed and nothing changed.
Teen’s death puts focus on caffeine powder dangers
A few weeks before their prom king’s death, students at an Ohio high school had attended an assembly on narcotics that warned about the dangers of heroin and prescription painkillers.
But it was one of the world’s most widely accepted drugs that killed Logan Stiner — a powdered form of caffeine so potent that as little as a single teaspoon can be fatal.
Monitors try to secure Ukraine plane crash site
International monitors moved gingerly Saturday through fields reeking of the decomposing corpses that fell from a Malaysian airliner shot down over rebel-held eastern Ukraine, trying to secure the sprawling site in hopes that a credible investigation can be conducted.
But before inspectors ever reach the scene, doubts arose about whether evidence was being compromised.
Without radar, missile may not have identified jet
If Ukrainian rebels shot down the Malaysian jetliner, killing 298 people, it may have been because they didn’t have the right systems in place to distinguish between military and civilian aircraft, experts said Saturday.
American officials said Friday that they believe the Boeing 777 was brought down by an SA-11 missile fired from an area of eastern Ukraine controlled by pro-Russian separatists.
For Obama, foreign crises grow more challenging
Surveying a dizzying array of international crises, President Barack Obama stated the obvious: “We live in a complex world and at a challenging time.”
And then suddenly, only a day later, the world had grown much more troubling, the challenges even more confounding.
U.S.: Can’t rule out Russian role in plane downing
U.S. Ambassador Samantha Power told an emergency meeting of the U.N. Security Council on Friday that the United States cannot rule out that Russia helped in the launch of the surface-to-air missile that shot down a Malaysia Airlines jet over eastern Ukraine, killing all 298 people on board.
Clinton papers: Of Iraq, bin Laden and Supreme Court
President Bill Clinton’s advisers carefully considered how to explain the president’s military action against Iraq in 1998 as the House was debating his impeachment, according to records from the Clinton White House that were released Friday. The documents also touch upon Osama bin Laden, consideration of military action in Haiti in 1994 and preparationsfor Supreme Court nomination hearings.
- More Headline News Headlines
- Starved Pennsylvania 7-year-old weighed only 25 pounds