What should we expect in 2012? The fourth quarter of 2011 ended well as the American consumer refused to be daunted by national political rankling and financial deterioration in Europe. National employment indicators improved and the stock market ended the year slightly higher relative to a year ago.
Throughout 2011 we experienced an upturn in the automotive market, increases and then decreases in oil prices, and a flat homeownership market with some continued deterioration in prices along with a tightening rental market. Is the end-of-year upturn sustainable through 2012? Will we see an acceleration of growth in 2012 or a stall and descent into a double dip?
We began 2011 being on the more conservative side of the consensus forecasts for the economy. We ended on a more optimistic note, perhaps for more emotional as opposed to purely rational reasons. Our primary concern early in 2011 centered on the prospect for losing government jobs at all levels, the end of Quantitative Easing 2, and the Consumer. The inability of Washington, D.C., to act more collaboratively was surprising, and the Japanese earthquake and U.S. tornados were random events. Europe was on the radar and we were optimistic that financial contagion would be more contained than it appears now.
There are two scenarios for 2012 -- steady as she goes and double dip. In September, at an economic presentation to U.S. Bank customers, I flipped a coin to determine whether we would enter into a double dip recession. The coin said double dip. I argued otherwise looking to September 2012. It's still a coin toss as some economists are adamant that another recession is on the way. Other economists, including myself, are encouraged by the fourth quarter 2011 performance; especially given all the talk about Europe and the Super Committee reinforcing the great divide in Washington.
Steady as she goes is about the best we can anticipate unless the consumer's wallet opens more with the enthusiasm of election year politics and manufacturing jobs accelerate the migration back to the U.S. from China to contend with growing logistical and labor cost unpredictability. Of course I would love to be surprised on the upside, but it's not in the cards at this time.
The direction the winds take us will be determined by a number of additional factors and how they play out during the year. These include:
Given the consumer comprises over 70 percent of GDP; they hold the key to 2012. The world economy is likely to struggle, federal government austerity is gaining momentum, and business is less likely to invest given greater uncertainty. Unfortunately this appears to be the economic reality for the coming 12 months and unlike four years ago when the majority of economists generally agreed on a prescription for the sick patient, this go round there is much greater divergence of opinion regarding the long-term cure. As a result, it will be a year of intense political debate and probably some more economic experimentation by the Federal Reserve. As I mentioned last month, we are in a period of transition, and if we can sustain steady growth, even if slower than we would want in 2012, that's not bad.
Best wishes for 2012.