FINANCE: Business and Economic Outlook for 2012

Column by Patricia Kummer


The calendar page has turned and things are looking up. Certain areas appear to be on a better track than others but, after a long dry spell, at least a slow recovery is on the horizon.

Consumers are getting tired of denying themselves, so spending is expected to increase. The average age of cars on the road is over ten years, so there could be more car purchases. Housing continues to bounce along the bottom, but it does not appear things are getting worse. Unemployment continues to gradually tick down and, although job creation is slim, it is positive. All in all, the next year feels a bit better than the last four.

Last week the U.S. Gross Domestic Product (GDP) number was revised up to 2.8 percent for fourth quarter 2011. GDP for 2012 is expected to be in the 2.3 percent range. Again, this is not a great number, but it is positive and slightly better than the recent past.

Now that we are on a world economy, it is not just about the U.S. number for growth, but what is expected in other countries as well. Europe continues to have its problems, but it appear to be successfully financing its debt through new bond issues along with some austerity measures. China could still have a soft landing after increasing interest rates repeatedly to curb inflation, and now with a declining Yuan, it appears things have slowed down.

Consumer confidence continues to be disappointing, likely due to the fact that this is not a typical recovery. In fact, it may be hard to recognize that we are even in a recovery since the changes are menial. Typically after a significant recession like we had in 2008, one would expect GDP to increase in the 4 percent to 5 percent range. That has yet to happen in this recovery. Consumers are growing impatient if they are trying to sell a house, waiting for a raise, looking for work or starting a business.

This January earnings season on Wall Street was the first in eight quarters that did not blow the cover off the ball. Earnings reports were mixed and many had outlooks that were adjusted down. Part of this could be due to the razor-thin margins some retailers are experiencing, partly due to slower growth in trading partners for multi-national companies, and partly due to the lack of financing available for consumers looking for large purchases.

The last FOMC meeting where Dr. Bernanke announced interest rates would remain low through 2014 should be a good indication for home buyers and businesses wanting to expand where financing will be needed. The other side of that coin, however, is how willing the banks are to lend. While this remains to be seen, eventually banks will have to put their capital back to work and lending will resume.

Planning will be important this year to gear up for the remainder of this economic recovery and get positioned for the "new norm." This includes slow growth, low interest rates and inflation, worldwide impact, a volatile stock market and a willing but prudent consumer.



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