The past year has been full of ups and downs—mostly downs—with the nation bracing for the worst with each jobs report, each GDP release, while also yearning to see a glimmer of improvement in the flat-lining U.S. economy.
Unfortunately, more often than not that hope has been dashed, but recently there seems to be a light at the end of the tunnel. Unemployment fell slightly, to 9 percent, last month and new unemployment insurance claims fell to their lowest level since April 2 as well. Housing, too, has seen some life breathed into it. Existing home sales saw a bump in October and inventories across the nation are beginning to dwindle. While there's still a long way to go and a lot of inventory to work through, key indicators are finally moving in the right direction, economists say.
The million-dollar question remains whether these improvements can be sustained. According to most economists, the outlook for the U.S. economy is a mixed bag, but there are some definite bright spots. Here are five reasons the economy could look slightly better in 2012:
Moderate economic growth. Economic activity in the United States has gone from the miserable lows of just 0.4 percent growth in the first quarter of 2011 to a solid—relatively speaking—2.5 percent growth rate in the third quarter. Economists expect that pace to continue in the fourth quarter and drop off only slightly in the New Year to 2.4 percent. In 2012, economists expect stronger growth in the second half of the year as Washington (hopefully) provides some clarity on economic policy, according to the National Association of Business Economists.
To be sure, 2.4 percent is nothing to cheer about—economists generally say growth upwards of 3 percent indicates a healthy economy—and there are plenty of challenges ahead for the United States both domestic and abroad that threaten to prevent the economy from gaining further steam. Poor consumer and business confidence and a tepid housing market remain huge albatrosses hanging around the neck of the U.S. economy.
Still, moderate growth is better than no growth, and heartening for a nation saddled with huge public debt, an anemic job and housing market, and partisan antics in Washington.
No second recession. Along with moderate projections for growth, the odds of the United States entering another recession are low. That's a huge turnaround from earlier this year, when some economists were almost certain the United States was heading into recession or was already in one.
"Economists responding to the latest NABE Outlook Survey expect moderate economic growth through 2012, with little likelihood of another recession or an outbreak of inflation," Shawn DuBravac, NABE outlook survey chair and chief economist at the Consumer Electronics Association, said in a report released today. "Despite a relatively subdued outlook, the panel estimates that the odds of a second recession remain low."
The report noted the panel's ongoing concern about debt-related issues in Europe, but emphasized that recession was among the least-likely scenarios. So while next year's economy probably won't turn up roses, it probably won't fall into a sinkhole either.
More business spending. One of the major paradoxes over the past several years is how well many businesses are doing in stark contrast to the ugly overall picture of the U.S. economy. In general, companies are flush with cash, and experts predict that profits and stock prices will continue to strengthen.
According to the NABE survey, corporate profits are expected to jump 7 percent in 2011 and 6 percent in 2012. Even with the intense volatility financial markets have seen over the past year, experts expect major indices to continue gaining ground overall through December 2012.
Due to uncertainty about the economy, many businesses put off investing in infrastructure or upgrading technology. That demand may now return, providing significant support for the ongoing economic recovery, experts say.