Low consumer demand isn't the only thing hindering hiring decisions. New government regulations, including healthcare reform and financial regulatory reform act Dodd-Frank, might be causing smaller firms to hold back on hiring, too. "The biggest cost of most small business is their labor costs," says T. Doug Dale, Jr., client adviser at Security Ballew Wealth Management. "If you think about that and then on top of that the fact that we have a healthcare mandate, those are two big things that are keeping employers hesitant and running as lean as they possibly can."
The persistent hangover from the housing bubble is another drag on the economy. "Much of the consumer spending growth we had coming out of the 2002 recession was the result of the appreciation of housing values that allowed people to extract equity from their homes, giving them more disposable personal income," Dale says. While the latest Case-Shiller Home Price Indices showed slightly increasing prices over the past three months, the unfortunate hallmark of this recovery has been consistently faltering housing prices, a trend experts expect to continue through the first half of next year.
"We have to start looking at consumer spending net of any appreciation in the housing market, which we don't expect to happen for several years," Dale says. That picture doesn't look too rosy. According to Dale, expectations for consumer income growth—a key factor in predicting consumer spending—will likely barely keep up with the cost of living, especially with rising food and energy costs.
Although tentative proposals by the Obama administration haven't been met with great enthusiasm, experts say there's still an important role for the government to fill as the economy claws its way out of one of the deepest, most persistent recessions in U.S. history.
"I think it's important for government to continue to play a part in stimulating the economy in a reasonable way," Noftsinger says. "[The federal government] should continue to support and provide an environment where growth can occur."
More infrastructure spending has been a popular pitch, a move supporters say would not only put Americans back to work but modernize the country's aging energy grid, roads, bridges, and rail systems. "There is clearly some multiplier effect on the economy that can come from some stimulus spending in the area of infrastructure," Dale says. "Look at what we spend on unemployment benefits, for example. There's obviously a greater benefit to paying somebody to go to work than paying someone to stay home."
But there are limits to government's impact on the situation, Noftsinger cautions. "Regardless of how many trillions of dollars we spend, the government doesn't have the capability or financial wherewithal to push the economy back into growth by itself," he says. "That's going to be a function of macroeconomics and consumer demand. But that said, it's a responsible approach by the government to create an environment where growth can occur by doing things like creating incentives for hiring."
Perhaps more damaging to the U.S. economy than low consumer demand, Americans' confidence in the economy and faith in government has steadily deteriorated over the past several months as the Obama administration has fended off forecasts of a double-dip recession. Most experts agree that apart from a credible plan to get the economy back on track, Americans need reassurance to boost morale and reinvigorate economic activity.