By Vicki Needham - 01/09/12 10:00 AM EST
All eyes are on consumers and whether they can spend enough to boost economic growth this year.
They are going to need jobs to do it.
The economy added 200,000 jobs in December, which was better than expected, and the jobless rate fell to 8.5 percent, the Labor Department reported Friday.
The number of workers who are unemployed, want a job but have stopped looking or are working part time and want more hours, dropped to 15.2 percent from 15.6 percent in November, the third straight month of declines and a nearly three-year low.
While there are 13.1 million unemployed, there also are 8.1 million working part-time who want full-time jobs, a drop from 9.3 million in September and the lowest level since January 2009.
Overall, 23.7 million are either out of work or underemployed — a figure far too high to trigger a revival of consumer spending, even though a large percentage of Americans have managed their accounts — credit cards, mortgages and savings — well, analysts say.
John Ulzheimer, president of consumer education at SmartCredit.com, said underemployment combined with the persistently high jobless rate will continue to stymie any significant pick-up in spending in 2012.
"Removing 25 percent of buying power from the economy won't work," he said. "You can make everything, car loans and credit cards, 0 percent interest, but those people don't have any capacity to make any payment, even on a cheap loan."
As the job market improves — economists estimate that 2.1 million jobs will be created this year, a third of what is needed to recover the remaining 6 million jobs lost during the recession — workers will need to find new and better jobs to kick-start spending.
Jobs can lead to more spending but, as Ulzheimer points out, even when those millions of workers are gainfully employed, it will take them time to pay off any additional credit card or other debt they have accumulated and replace depleted retirement and savings accounts.
"They will have to take care of all of that first," he said.
Consumers showed a willingness to spend beyond economists’ expectations during the holidays, most likely a result of pent-up demand, while at the same time resolving to save more and pay off debt in the new year.
That has led economists to predict more sluggish spending patterns into 2012.
Still, consumers are saving less than they were at the peak of the downturn and there was a slight third-quarter rise in credit card delinquencies, though rates are still very low.
The housing market is still dealing with a glut of foreclosures and more are likely to come down the line — meaning it will probably be several more years before the sector makes a full recovery.
Consumer spending ticked up only slightly in November, the latest figures available from the Commerce Department, increasing 0.1 percent after rising by the same margin in October. When adjusted for inflation, spending increased 0.2 percent in November after a similar gain in October.
Although consumers are restrained by a lack of jobs or good positions, there are signs indicating that they are trimming their household balance sheets — paying off their credit card debt, saving more while spending a little, too, following an economic boom in the mid-2000s fueled by the extraction of home equity and rampant debt expansion and overspending.
John Canally, an economist for LPL Financial, said consumer's balance sheet repair is "in the late innings" as debt-to-income ratios are at or below the long-term average.
"There's a long way to go to get back to normal," he said. "It's beginning to be self-sustaining and could help a more robust recovery in the next couple of years."
Still "you can walk down any street in this country and someone knows someone who is unemployed or underemployed and they might even have someone living on their couch," he said. Until their uncle, brother or cousin can get a job and find a place of their own, the recession won't be over for those people and spending won't resume at a fast enough clip to bolster the economy.
San Francisco-based Trulia, an online real estate firm, reported in a recent survey that a majority of those asked — Democrats and Republicans — agree that lowering unemployment is an extremely or very important public policy goal, more important than fixing housing, and it is the top issue for President Obama's reelection campaign.
Canally said several months of strong jobs reports are needed to create a sea change in consumer confidence.
"Behaviorally people are preparing for the worst," he said. "Spending will improve when people feel the 2008 recession is not right around the corner."
Canally agreed with a recent assessment by Federal Reserve Chairman Ben Bernanke that the U.S. economy has been unlucky during the recovery — the Japanese earthquake disrupted the global supply chain, especially for the auto industry, and the European debt crisis held down the nation's economy through the summer, which all contributed to hold down U.S. hiring.
Continued weakness in consumer spending helped contribute to a 32 percent increase in retail job cuts, which totaled 50,946 in 2011, according to a report from Challenger, Gray and Christmas, a Chicago-based global outplacement firm.
“In the end, there may be little government can do to jump-start job growth," said John Challenger, president and chief executive of the firm.
"It really comes down to demand and, right now, consumers and businesses around the world simply are not spending," he said. "So, there is little demand and, therefore, no compelling reason to ramp up hiring.”
Still, it would be wrong for job seekers to assume that it is impossible to find a job.
The latest available government figures show that in October alone, employers hired 4 million new workers and there were still more than 3.2 million openings at the end of the month.
“It is important for job seekers to realize that every month about two million people quit their jobs," he said.