STEVE INSKEEP, HOST:

Now let's talk about a different kind of disaster - the economic disaster of recent years. Later this week, we get another snapshot of the U.S. job market - the last unemployment report, by the way, before the presidential election. Forecasters expect another sign of slow but steady job growth. And as NPR's Scott Horsley reports, whoever is in the Oval Office next year will have to cope with a sluggish economy and urgent choices.

SCOTT HORSLEY, BYLINE: One thing to keep in mind about the economy next Inauguration Day: It will be nowhere near the disaster of four years ago. Back then, employers were laying off hundreds of thousands of workers a month. Banks were in danger of collapse. And economic output was shrinking at a rate of nearly 9 percent. Chief economist Nariman Behravesh, of IHS Global Insight, says while the economy is not yet healthy, it is vastly improved. Companies are slowly adding workers. The financial system has stabilized. And last Friday came word that output grew in the third quarter by a modest 2 percent.

NARIMAN BEHRAVESH: We've been stuck in this healing process for the last four years. And it's slowly coming to an end, and the economy is on the mend.

HORSLEY: Home prices have finally started going up again, while gasoline prices have come down. Richard and Janet Coover, who attended an Obama rally in Dayton, Ohio, last week, say things are turning up. Richard's a machinist. Janet works at a battery factory.

RICHARD COOVER: The economy is starting to pick up. It's quite evident in this area. People that you know, that have been looking for employment, are now getting actual shots at positions.

JANET COOVER: And here, you see it; more and more jobs out there. So - and then I hear of friends getting jobs, and everything. So I think it's really moving forward.

HORSLEY: A report last Friday showed consumer sentiment across the country, is now at its highest level since the fall of 2007. But just as consumers are starting to feel better and spend more freely, businesses have started cutting back. Kathy Trautman is the area manager of a Manpower office - also in Dayton - that supplies temporary workers to manufacturers and other companies.

KATHY TRAUTMAN: The first half of this year, the trends were definitely looking up. But as of late July, we started to see a flattening or softening off. It's not the kind of drops that we saw in 2008. But it's, more or less, a lack of growth.

HORSLEY: Trautman says that's partly because of a drop in demand, in Europe and Asia; and partly because of the cloud now hanging over Washington.

TRAUTMAN: Many of our clients seem to be in a holding pattern connected with this uncertainty of the direction.

HORSLEY: That's one of the issues the president will have to address next year, in order to foster a more broad-based economic recovery. Not so long ago, business spending, and exports, were among the bright spots in the economy while housing was in the dumps, and consumers were sitting on their hands. Economist Behravesh says the situation has now reversed.

BEHRAVESH: You know, if this is a four-cylinder car, it's only firing at two of the four cylinders, basically. Housing, consumer spending are doing OK. But exports are not, and business spending is not doing that well.

HORSLEY: Business people have long worried about the federal government's growing debt levels. But reversing the debt too quickly could be even worse. Lynn Reaser is past president of the National Association for Business Economics.

LYNN REASER: The first priority for Congress, and the new president, will be to prevent the fiscal cliff from happening.

HORSLEY: Reaser is talking about the big tax hikes and draconian spending cuts that are set to kick in automatically, at the first of the year, unless lawmakers and the president head them off.

REASER: This could really push the economy over the cliff, and push us into recession.

HORSLEY: Last week, the CEOs of dozens of big companies issued a statement urging lawmakers to adopt a long-term deficit-cutting plan that includes both spending cuts and new tax revenues, similar to what the president's Simpson-Bowles Commission recommended. Economist Behravesh says that would be the best-case scenario. Worst case, he says, is continued gridlock.

BEHRAVESH: I would say the risk is that that uncertainty stays with us; that politicians in D.C. continue to have this standoff, and this drags on. I think that's probably the single biggest risk facing the U.S. right now.

HORSLEY: There are other risks, of course. A conflict in the Middle East could send gas prices soaring. Political breakdown in Europe could threaten the global financial system. If those shoes don't drop, though, whoever is in the White House could expect both growth and hiring to accelerate, in the years to come. As to the policy debate now weighing on business people, that's within the power of Congress - and the president - to solve.

Scott Horsley, NPR News, Washington.

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