The Economy Obama Faces: Slow But Gaining Steadily

Economists surveyed last month by The Associated Press said they expected the economy to grow a lackluster 2.3 percent next year, too slight to generate strong job growth. From July through September, the economy grew at a meager 2 percent annual rate.

Part of the reason is that much of Europe has sunk into recession. Leaders there are struggling to defuse a debt crisis and save the euro currency. Europe buys 22 percent of America's exports, and U.S. companies have invested heavily there. Any slowdown in Europe dents U.S. exports and corporate profits.

And China's powerhouse economy is decelerating, slowing growth across Asia and beyond.

Most urgently, the U.S. economy will fall over a "fiscal cliff" without a budget deal by year's end. Spending cuts and tax increases that would total about $800 billion in 2013 will start to kick in. The combination of those measures would likely trigger a recession and drive unemployment up to 9 percent next year, according to estimates by the Congressional Budget Office.

Many U.S. employers are wary of expanding or hiring until that potential crisis is averted. That's why analysts have said resolving, or at least delaying, the fiscal cliff should be the most urgent economic priority for the White House.

In the longer run, analysts are more optimistic. Americans are feeling generally better about the economy. Measures of consumer confidence are at or near five-year highs.

And the main reason unemployment rose from 7.8 percent in September to 7.9 percent in October was that more people felt it was a good time to look for work. Most found jobs. Those who didn't were counted as unemployed. (The government counts people without jobs as unemployed only if they're looking for one.)

A brighter outlook among consumers is due, in part, to a steady increase in home prices after a painful six-year slump. Higher home prices can help create a "wealth effect," making homeowners feel richer and spurring more spending.

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