We prepare to close a year that began with economists’ optimism about consumer and business spending and growth rate projections ranging from 3.5 to 4 percent. What we really experienced, however, was a sharp decrease in consumption and much lower growth in Gross Domestic Product (GDP) than predicted, as gasoline prices decreased more moderately than anticipated, the jobless rate remained above 9 percent, we experienced continued fiscal tightening, and we still wonder how the financial crisis in Europe will be resolved. These factors raise questions about the accuracy of the 2011 economic forecasts and have resulted in credit rating agencies, international investment banking firms, and even the Federal Reserve to lower U.S. economic outlooks for 2012 as fears of a double-dip recession seem to be on everyone’s mind.
So what can we expect for 2012? Many experts predict growth rates ranging between 2 and 2.5 percent with the jobless rate decreasing to about 8.5 percent. Those numbers assume the economy will add 150,000 jobs a month, which would result in the expected 2 percent growth. However, the jobless rate will not decline to the degree that Americans anxiously await. Economists also will find themselves in a difficult position as they try to balance a healthy core inflation rate, which is expected to be around 2 percent, with a reduction in the unemployment rate. Short-term interest and commercial lending rates are expected to be consistent, as the Federal Reserve has committed to keeping rates near zero through the second quarter of 2013.
Despite the bleak “more of the same” outlook, some positive factors offer a glimmer of hope. Business cash levels are at an all-time high and fuel costs are predicted to continue to decline further into 2012. After rounds of layoffs and learning to survive on a lean workforce over the last few years, companies have started to reinvest capital by focusing on infrastructure and upgrades. For instance, we have started to see an increase in orders for software and equipment during the second half of 2011 and expect this growth to continue through 2012.
While these factors tend to imply that we should be able to avoid slipping into another recession, it will still be a long road until we fully emerge from this economic slump. We will need to increase job growth to a minimum of 200,000 a month, most of which should be in the private sector that employs the majority of our workforce. That job growth should in turn increase consumer spending, which comprises about 70 percent of all economic activity. We’re also keeping our eye on the bipartisan committee appointed by the White House and Congress, with hopes that they can assemble the right stimulus package to jump start our economy and give it the traction to once again become a leader in the global marketplace.