7 Moments That Moved the Financial Markets in 2011


7. Unemployment Drags on

A slack labor market remains the biggest long-term challenge for both consumer spending and aggregate demand, according to LeBas. Given the pace of job growth, full employment remains five-plus years away, he said.

In Janney Capital Market's 2012 economic outlook, LeBas said we can look forward to the following:

1. European powers seem to show little willingness to bring out the European Central Bank's "bazooka" to deal with the more acute critical problems facing the Euro. That lack leaves an overhang above risk assets.

2. Banking sector distress stemming from European sovereign distress is having a measurable impact on banks' willingness to provide credit, thereby presenting a 50/50 recession risk.

3. Despite this almost inexplicable consumer stability, the U.S. economy continues to lack any inspiration that could drive growth to escape velocity, suggesting 2012 will be at best a year of slow growth, replete with a risk of recession.

4. The first round of federal spending cuts are slated to go into effect in 2012, and baring an unlikely watering-down of budget control provisions, we expect headwinds from knock-on effects.

5. Monetary policy is no longer able to effectively support growth, as shown by the failure of the Federal Reserve's "quantitative easing" measures to meaningfully increase the "real" money supply or otherwise stimulate borrowing demand.

6. With consumer trends less-than-impressive and commodity price hikes now behind us, inflation is moderating. The first potential for acceleration may be in 2015.

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