A Strong Consumer Is Key to a Strong Job Market ... - Yahoo! Finance

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Investors had a long Memorial Day weekend to be free of the U.S. market, but this week could make that mini-vacation seem like a distant memory. A large number of data points are on the calendar, ending with the most watched of all on Friday, the monthly jobs report.

The U.S. unemployment rate, which stands at 8.1 percent, has ticked down in recent months, but since the beginning of the year the pace of jobs growth has slowed. In April, just 115,000 nonfarm payroll jobs were created, down significantly from the revised figures for March (154,000 jobs) and February (259,000 jobs).

If the jobs picture does not improve in the coming months, President Barack Obama could face an uphill challenge when American voters head to the polls in November. History has not be kind to presidents who preside over high unemployment. No president has won re-election with unemployment above 6% since World War II, with the exception of President Ronald Reagan in 1984, who won despite a jobless rate of 7.2%.

Obama, however, likely will be able to claim victory on his promise to bring the unemployment rate down to at least 8% by election day, which is currently six job reports away.

In interviews with Fox News and Time magazine last week, the presumed Republican nominee Mitt Romney -- who can clinch if he wins the Texas primary today -- made an unemployment pledge himself. He promised to bring the jobless rate down to 6% in the next four years.

"By virtue of the policies that we'd put in place, we'd get the unemployment rate down to 6%, and perhaps a little lower," said Romney, while citing a three-pronged approach to do that, including throwing out Obama's health care plan, creating a U.S. energy policy and tackling the country massive fiscal problems.

While Romney's promise seems like a lofty goal, given the current U.S. growth rate, most macro forecasts have the unemployment rate coming down to that level all by itself, says Laura Tyson, University of California-Berkeley Haas School of Business professor and former economic adviser to President Bill Clinton.

According to Congressional Budget Office estimates, the unemployment rate is expected to fall to roughly 7% by the end of 2015 and 5.5% by the end of 2017, based on the current rate of growth.

While "the unemployment rate is coming down" the bigger challenge is for "it to come down faster," Tyson says. The rate of private sector job creation has been faster this previous recession compared with the downturn at the start of the last decade, notes Tyson. But in order to bring employment back to levels before the 2007-2009 recession, which was worst recession since the Great Depression, the consensus is that employers would need to create roughly 250,000 jobs a month. And at this point, 250,000 jobs a month does not seem likely anytime in the foreseeable future.

In the accompanying interview, Tyson says stronger consumer demand is the solution that will lead to more jobs, and she cites three things Congress can do to help bring down the unemployment rate.

1. Extend the payroll tax cut. "We need to extend the stimulus measures that are in effect this year through next year," she says. "I don't see any reason for taking away payroll tax relief, which is an important stimulus." The payroll tax cut is currently set to expire at the end of the year if Congress does not act.
2. Invest in infrastructure. Doing so would inevitably lead to more jobs.
3. Refinancing programs for homeowners. "It would be a tremendous boost if we could help people refinance," she says, noting that families could save up to $3,000 a year.

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