|2012 FORECAST FOR THE ECONOMY: CAUTIOUSLY OPTIMISTIC|
Jobs are up, and gas prices are down. Cash registers are ringing, and house prices are back in line. But if politicians can't get their act together, the whole show could stall out.
After four years of recession and subpar growth, could 2012 be the year the U.S. economy finally snaps out of its funk? Despite the turmoil in Europe, many Americans would like to think so.
Let's start with the good news: Recently the economy has done better than expected. Back in June, citing rising gas prices and the drawing-down of the stimulus, I asked whether it was too early to start talking about a double-dip recession. Despite a lot of subsequent angst, it was. Between July and September, GDP rose at an annualized rate of about 2%; the fourth-quarter figure may well be close to 3%. If that rate of expansion were to be sustained, unemployment would come down. Most professional forecasters think growth will be more modest. In a year-end survey by the National Association of Business Economics, the median prediction for GDP growth next year was 2.4%, which is basically an extrapolation from what we've seen over the past six months. Here are some economic prospects.
First, employers are hiring, and the unemployment rate is finally falling. Second, rising gas prices, which act like a tax on the economy, are gone for now. After topping $4 a gallon in the summer, the average price at the pump is about $3.30. Going forward, it could well dip below $3. Global stocks of crude are rising, which often augurs a fall in prices.
Third, there is a lot of pent-up demand out there. As the stampede to the malls on Black Friday showed, Americans are still inveterate shoppers. After years of scrimping and saving, they are eager to buy new cars and gadgets, remodel their homes, and splurge on expensive vacations. Outside of the still-depressed real estate sector, many businesses are doing well.
Finally, some of the imbalances that built up during the Greenspan/Bernanke credit bubble have been alleviated, if not eliminated. Relative to income, house prices are now back to their historic average. Personal-savings rates have risen. Debt burdens are down. In 2007 the typical American household was paying about 14% of its income servicing debts. Today the figure is 11%.
Read more/source: http://finance.fortune.cnn.com/2011/12/13/forecast-economy-cassidy/