2012 US Economy Forecast

Jan 2, 2012 9:24am

U.S. financial markets are closed today. So here’s a look at America’s prospects for 2012. The economy might be headed for a stronger growth track, but there are least three potential obstacles to watch for: Europe, China and political gridlock.

First the positive signs, of which there are plenty: the jobs market is looking up, housing sales and construction have been showing recent signs of improvement, business sales and profits are rising, and even many consumers are in better shape today than they were in 2010.

“Households have actually made a lot of progress in terms of working down that debt,” says Greg Ip, U.S economics editor of the Economist magazine. Credit card companies in December reported the lowest delinquency rates in years.

“One of the reasons that I don’t think the risks of a recession is extraordinarily high is that the parts of the economy that normally push us into a recession such as housing, automobile sales and business inventories; they’re all actually still quite depressed,” Ip says. “They never actually recovered much from their recessionary levels.”

Brian Hamilton, CEO of financial information firm Sageworks, said, “The jobs numbers are getting better.” Surveys of privately owned business sales show “the numbers are looking good.”

This week’s economic reports might offer fresh clues on whether the recovery really is picking up. The Institute for Supply Management comes out with findings on manufacturing and services-oriented companies. The government releases monthly reports on factory orders, construction and monthly employment.

While all the numbers could point to growth, the U.S. economy faces potentially severe headwinds from Europe. “Next year will no doubt be more difficult than 2011,” Germany’s Chancellor Angela Merkel said on New Year’s Eve. Europe is facing “its harshest test in decades.”

Slower growth in China is another potential negative, while Washington political gridlock and a fierce election campaign might also take a toll. “Our political system is getting worse, not better,” the Economist’s Ip says. “Every economist that you talk to says we should have short-term fiscal stimulus and long-term deficit reduction. And because of the battles in Washington, we seem to be getting the opposite.”

Happy New Year!

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