WASHINGTON – The U.S. January employment report is expected to show that job growth remained steady last month even though Americans began receiving smaller paychecks that could keep the economy sluggish.
Friday’s report is forecast to say that the economy added 155,000 jobs in January and that the unemployment rate stayed at 7.8 per cent for a third straight month, according to a survey of economists by FactSet.
The economy has averaged about 150,000 additional jobs a month over the past two years, not enough to rapidly reduce still-high unemployment.
Still, even modest hiring would cushion the impact of the higher Social Security taxes that most consumers are paying this year. And it would help the economy resume growing after it shrank at an annual rate of 0.1 per cent in the October-December quarter.
Higher Social Security taxes are reducing take-home pay for most Americans. A person earning $50,000 a year will have about $1,000 less to spend in 2013. A household with two high-paid workers will have up to $4,500 less.
Analysts expect the Social Security tax increase to shave about a half-point off economic growth in 2013 given that consumers drive about 70 per cent of economic activity.
The hit to consumers is coming at a precarious moment. The economy contracted in the fourth quarter for the first time in 3 1/2 years. The decline was driven largely by a steep cut in defence spending and a drop in exports. Analysts generally think those factors will prove temporary and that growth will resume.
The contraction last quarter points to what are likely to be key challenges for the economy this year: the prospect of sharp government spending cuts and uncertainty over whether Congress will agree to raise the federal borrowing cap.
Most analysts predict that the economy will grow again in the January-March quarter, though likely at a lacklustre annual rate of around 1 per cent. They expect the economy to expand about 2 per cent for the full year.
Two key drivers of growth improved last quarter: Consumer spending increased at a faster pace. Businesses invested more in equipment and software
In addition, homebuilders are stepping up construction to meet rising demand. That could generate more construction jobs.
And home prices are rising steadily. That tends to make Americans feel wealthier and more likely to spend.