Unemployment in the world's leading economy remains stubbornly high and the theory is negative equity is the indirect reason for the lack of pickup - despite growth.
US mortgage woes cast shadow on labour market
Ben Bernanke, the chairman of the US Federal Reserve, gave a talk at the Federal Deposit Insurance Corporation last Thursday that was firmly on message: growth is decent but not yet strong enough to affect the jobs data.
The worry lurking below is that unemployment may be experiencing more than just a typical sluggish restart. Some studies now reveal that the ongoing mortgage pain is also making its presence felt in the labour market.
In a lecture at the London School of Economics (LSE) at the end of 2009, Christopher Pissarides, the Norman Sosnow chair in economics at the LSE, explained his models of business cycles and labour market frictions.
A tight market is one in which there is only a shallow pool of unemployed workers from which companies can fill vacancies. In a slack market there are many unemployed and companies are spoilt for choice.
But in any market there is an underlying level of friction. The pool may be deep and brimming yet firms post vacancies only to watch them lie open. Maybe the match is just not quite right, with employer and employee missing each other in the mess of online job hunting sites.
At this point, Mr Pissarides held up the US as a beacon of a low-friction market. But there was a note of warning in his voice. In 2000, Joe Bloggs would move his family from Florida to Nevada in pursuit of a job. His wife Jane, a primary school teacher, would snap up a job at the local school. Upping sticks was a feature of this slick market. But that does not appear to be happening this time around.
The slide into recession in the US was in keeping with this story of a low-friction market. However, the data since 2009 has begun to ring alarm bells. Having been awarded the 2010 Nobel Prize for Economics with two others, Mr Pissarides and his fellow laureates emphasised this in the Prize Lecture last month.
They each showed a graphic in which unemployment and vacancies followed each other down in classic recession style. With the technical end of the recession in mid-2009, vacancies have started to rise again as businesses regain confidence to hire.
The surprise has been that unemployment seems to have broken with vacancies and remained stubbornly high.
Although US unemployment has now edged to its lowest in 18 months, the recent data has continued to disappoint forecasters. The US economy added 103,000 jobs - failing to meet the forecasts of 175,000.
This can be explained in two ways. First, it could just be that the economy is experiencing a temporary blip and next year Mr Pissarides will again be able to hold up the US as an example of a low-friction labour market.
Second, and more worrying, it could be that unemployed workers and employers are failing to hook up. The vacancies are there, but they remain unfilled.
One theory is mortgage woes blamed for the crisis may well be derailing the once slick labour market. Joe Bloggs now finds himself unemployed in Nevada. He is searching for a job but this time he is having to cast his net a little closer to home.
The reason is simple: he has huge mortgage and because of the property slump, he is now in negative equity territory.
The negative equity story is startlingly widespread. By the end of the third quarter of last year, 10.8 million, or 22.5 per cent, of homes with mortgages were in negative equity. The bleak hope for residents of Nevada, who top the charts at 67 per cent, is repossession.
The US economy is now engaged in a race against time. The effects of long-term unemployment on job prospects are unquestionably bad.
As Joe Bloggs languishes, his skills rust. Those that can are finally paying off debt.
Those in Joe's situation are in danger of being left behind.