Solid Jan hiring would boosts hopes for US economy

WASHINGTON (AP) — The January employment report is expected to show Friday that job growth remained steady last month even though Americans began receiving smaller paychecks that could keep the economy sluggish.

Economists forecast that the economy added 155,000 jobs in January and that the unemployment rate stayed at 7.8 percent for a third straight month, according to a survey 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 percent 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 percent of economic activity.

The hit to consumers is coming at a precarious moment for the economy. It contracted in the fourth quarter for the first time in 3½ years. The decline was driven largely by a steep cut in defense spending and a drop in exports. Analysts generally think those factors will prove temporary and that the economy will resume growing.

Still, 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 lackluster annual rate of around one percent. They expect the economy to expand about two percent for the full year.

Two key drivers of growth improved last quarter: Consumer spending increased at a faster pace. And 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. Housing could add as much as one percentage point to economic growth this year, some economists estimate.

Auto sales reached their highest level in five years in 2012 and are expected to keep growing this year. That’s boosting production and hiring at US automakers and their suppliers.