AP survey: More optimism about US jobs and economy

WASHINGTON (AP) — The U.S. economy is improving faster than economists had expected. They now foresee slightly stronger growth and hiring than they did two months earlier — trends that would help President Barack Obama's re-election hopes.

Those are among the findings of an Associated Press survey late last month of leading economists. The economists think the unemployment rate will fall from its current 8.3 percent to 8 percent by Election Day. That's better than their 8.4 percent estimate when surveyed in late December.

By the end of 2013, they predict unemployment will drop to 7.4 percent, down from their earlier estimate of 7.8 percent, according to the AP Economy Survey.

The U.S. economy has been improving steadily for months. Industrial output jumped in January after surging in December by the most in five years. Auto sales are booming. Consumer confidence has reached its highest point in a year. Even the housing market is showing signs of turning around.

"The economy is finally starting to gain some steam, with consumers and businesses more optimistic about prospects in 2012," said Chad Moutray, chief economist at the National Association of Manufacturers.

On Friday, the government will issue the jobs report for February. Economists expect it to show that employers added a net 210,000 jobs and that the unemployment rate remained 8.3 percent.

The AP survey collected the views of two dozen private, corporate and academic economists on a range of indicators. Among their forecasts:

— Americans will save gradually less and borrow more, reversing a shift toward frugality that followed the financial crisis and the start of the Great Recession.

— Obama deserves little or no credit for declining unemployment. Only one of the 19 economists who answered the question said Obama should get "a lot" of credit. They give most of the credit to U.S. consumers, who account for about 70 percent of economic growth, and businesses.

— The economy has begun a self-sustaining period in which job growth is fueling more consumer spending, which should lead to further hiring.

— European leaders will manage to defuse their continent's debt crisis and prevent a global recession. But the economists think Europe's economy will shrink for all of 2012.

— The economy will grow 2.5 percent this year, up from the economists' earlier forecast of 2.4 percent. In 2011, the economy grew 1.7 percent.

The brighter outlook for jobs follows five straight months of declining unemployment. Employers added more than 200,000 net jobs in both December and January. The unemployment rate is at its lowest level in nearly three years.

One reason the rate has fallen so fast is that fewer out-of-work Americans have started looking for jobs. People out of work aren't counted by the Labor Department as unemployed unless they're actively seeking jobs.

Many economists have been surprised that the stronger economy hasn't led more people without jobs to start looking for work. If many more were looking, the unemployment rate would likely be higher.

Manufacturers have been hiring more consistently than other employers. Moutray expects factory output to rise 4 percent this year, better than in 2011. Manufacturers will have to continue hiring to keep up with demand, he said. That will help lower the unemployment rate to 8 percent by Election Day, he predicts.

"Manufacturers are relatively upbeat about production this year," Moutray said. That will require expanding factories and buying more machinery.

"All that plays into a better year than some people might have been expecting," he added.

The economists forecast that employers will add nearly 1.9 million jobs by Election Day, up from their December projection of nearly 1.8 million.

But Mike Englund of Action Economics is among those who noted that the declining unemployment is due, in part, to fewer people seeking work. Millions of those out of work remain too discouraged to start looking again, or, in the case of many young adults, haven't begun to do so.

"Most of this recent drop in the unemployment rate is due to a mass exodus" from the work force, Englund said.

The economy still has about 5.5 million fewer jobs than it did before the recession began in December 2007.

Still, the falling unemployment rate appears to be raising the public's view of Obama's economic stewardship. In an Associated Press-GfK poll last month, 48 percent said they approved of how Obama was handling the economy, up 9 points from December. And 30 percent of Americans described the economy as "good" — a 15-point jump from December and the highest level since the AP-GfK poll first asked the question in 2009.

The U.S. economy remains under threat from Europe's debt crisis. But those concerns have eased, the AP survey showed.

Several economists credited the European Central Bank's move to provide unlimited low-interest loans to banks with helping prevent an international crisis

"Time fixes all wounds," said Marty Regalia, chief economist at the U.S Chamber of Commerce. "Europe didn't come apart at the seams, and we haven't fallen into the abyss. Every day ... it becomes a little less likely that it will happen."

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AP Economics Writer Derek Kravitz contributed to this report.

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What the Tooth Fairy Can Tell Us About the Economy

Photo: Chip Simons | Workbook Stock | Getty ImagesThere are lots of ways to measure the health of the economy—consumer spending, sentiment, productivity, home sales.

And now - teeth.

The Tooth Fairy isn't delivering like she used to.

According to The Original Tooth Fairy Poll, the average tooth bagged $2.10 under the pillow in 2011, down 17 percent from $2.52 in 2010 (and a whole lot more than I ever got!). 

Delta Dental, which has conducted the poll since 1998, says this is one of the largest declines it's ever seen, and that may not be a good for the stock market. "In seven of the past 10 years, the trend in average giving has tracked with movement of the Dow Jones Industrial Average." What does this tell me? The Tooth Fairy is underwater in her mortgage and sunk all her teeth into Netflix shares [NFLX  Loading...      ()   ] last year.

The good news, the Tooth Fairy still visited 90 percent of homes in the U.S. in 2011. However, while the national average was $2.10 a tooth, Delta Dental says the most common reward was still $1, an amount the Tooth Fairy used to bring to my house when my kids were losing their teeth back in the late '90s. Fifteen years of little movement in the preferred buck-per-tooth tells me that if there was a Tooth Fairy ETF, it would not be a good investment.

Like so many other indicators, this one shows that improving the economy is like pulling teeth.

Questions? Comments? Funny Stories? Email document.write("");document.write("funnybusiness"+"@"+"cnbc.com");document.write('');

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Euro Zone Economy to Shrink in 2012, EU Stagnates

The euro zone's economy is heading into its second recession in just three years, while the wider EU will stagnate, the EU's executive said on Thursday, warning that the area has yet to break its vicious cycle of debt.

Jonathan Kitchen | Image Bank | Getty Images

Economic output in the 17 nations sharing the euro will contract 0.3 percent this year, the European Commission said a report, reversing an earlier forecast of 0.5 percent growth in 2012.

The wider, 27-nation European Union, which generates a fifth of global output, will not manage any growth this year, the Commission forecast.

"The EU is set to experience stagnating GDP this year, and the euro area will undergo a mild recession," the Commission said in its interim forecast report.

"Negative feedback loops between weak sovereign debtors, fragile financial markets, and a slowing real economy do not yet appear to have been broken," the Commission said.

The euro zone was last in recession in 2009, dubbed the Great Recession worldwide, when the economy contracted 4.3 percent during the deepest global slump since the 1930s.

A poisonous mix of high public debt, evaporating investor and business confidence and rising unemployment killed off the two-year recovery from the global financial crisis, economists say.

Despite signs of stabilisation this year, economists polled by Reuters only expect growth to return in 2013.

Inflation for the euro zone this year should come to nearer to what the European Central Bank judges about the right level for stable prices and a healthy economy: 2.1 percent, the Commission forecast.

The growth forecast for the euro zone is a shade more optimistic than the International Monetary Fund's view that output in the currency area will dip 0.5 percent this year.

But both agree the bloc will manage only a modest recovery in the final months of 2012.

Fragile Outlook

The forecasts could still worsen.

They rely on the assumption that EU leaders will act to resolve the sovereign debt crisis, which is now in its third year and has shattered investor confidence in a region once regarded as one of the world's safest havens.

"The balance of risks to GDP growth remains tilted to the downside amid still-high uncertainty," the Commission said.

"The interim forecast continues to rely on the assumption that adequate policy measures are decided and implemented." EU leaders hold a summit in Brussels next week where investors hope they will agree to raise the ceiling of the euro zone's joint rescue funds and pave the way for more IMF funds to stand behind heavily indebted southern European economies.

But the German government said this week it sees no need to beef up the funds.

Adding to the EU's difficulties, the downturn is widening the gap between the wealthy economies of northern Europe and those of the south that are most in need of growth to pay off debt.

Germany and France, the euro zone's two largest economies, are likely to escape recession this year, growing 0.6 percent and 0.4 percent respectively, while Greece will enter its fifth year of economic contraction and Spain will shrink 1 percent, the Commission said.

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More Asset-Buying Depends on Economy: BOE

More asset-buying by the Bank of England will depend on how the economy evolves between now and May, David Miles, the Monetary Policy Committee member who joined ultra-dove Adam Posen in voting for an even larger boost in quantitative easing, told CNBC.

Photo: Vulture Labs | Getty Images

Minutes from the Bank of England's meeting released on Wednesday showed Miles and Posen voted for a 75 billion pound ($117 billion) boost to the bank's program of buying government bonds, also known as gilts, more than the 50 billion pounds the Bank announced it would inject.

Their position brought back into the limelight the debate on whether the central bank will resort to more quantitative easing , with some economists expecting it to do so in May.

"We'll see where we are in May," Miles told CNBC in an interview, adding that in his opinion, barring some unforeseen circumstances such as a spike in the price of oil, the pace of price rises is likely to keep coming down.

"I think it is likely that wage settlements remain pretty subdued and that's one of the reasons why it seems to me pretty likely that inflation will continue on the downward trajectory we've seen over the last few months," he said. "That looks like it's playing out in a way that we thought would happen 6-12 months ago."

He said he voted for more quantitative easing this month because the UK economy was still in a bad condition and monetary policy "very expansionary" and boost demand as much as possible.

"If you stand back and see where the UK economy is, it's still in a precarious situation," Miles said. "There hasn't really been much of a recovery from what was one of the deepest recessions in the history of this country."

As well as the upside risk of an oil price, there are downside risks to inflation, according to Miles.

"I think there's plenty of risk on the other side, probably the biggest one is that things play out badly in the euro zone, that some of those risks crystallize, that that hits demand across Europe, the UK's biggest export market," he said.

More Gilts Available

Some economists argue that the Bank of England's strategy of buying gilts was not the best as banks are just hoarding the cash instead of passing it on to the wider economy, but Miles

"My view is that the quantitative easing strategy of buying overwhelmingly gilts actually remains quite a powerful tool," he said.

The outstanding stock of gilts that the central bank could buy is actually larger than when the bank started its asset-buying program back in March 2009, Miles disagreed.

"The creation of new gilts by the government has actually met, more than matched, the pace of purchases by the BOE since we started buying in the early part of 2009. We're certainly not in a situation where any time in the near future we simply run out of bonds that we could buy."

Economists have said that credit conditions in the UK remain tight and that consumption is suffering because of this.

"I think it would be foolish to expect the availability and cost of credit to households and to companies to go back to the relatively easy conditions we were in in the years leading up to the crisis of 2006-2007, that seems to me pretty unlikely," Miles said.

But "fairly soon, probably this year, for most households the squeeze on their disposable income is going to come to an end" said Miles, who pointed out that over the past few years wage increases have been consistently lower than the rate of inflation.

"I suspect that very unusual situation which has lasted for a few years will end fairly soon and that will really change the dynamics of consumer spending in the UK," he said, adding that any future decisions on quantitative easing will depend on the economy, of which the consumer is a big part.

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