Recovery Strengthens Through 2011, Economists Predict

[Frodo]

Anyone agree with them?

Economists Expect a Strong Recovery in 2011

By SEWELL CHAN
Published: December 23, 2010
 
WASHINGTON — Eighteen months after the recession officially ended, the government’s latest measures to bolster the economy have led many forecasters and policy makers to express new optimism that the recovery will gain substantial momentum in 2011.

Economists in universities and on Wall Street have raised their growth projections for next year. Retail sales, industrial production and factory orders are on the upswing, and new claims for unemployment benefits are trending downward. Despite persistently high unemployment, consumer confidence is improving. Large corporations are reporting healthy profits, and the Dow Jones industrial average reached a two-year high this week.

The Federal Reserve, which has kept short-term interest rates near zero since the end of 2008, has made clear it is sticking by its controversial decision to try to hold down mortgage and other long-term interest rates by buying government securities.

President Obama’s $858 billion tax-cut compromise with Congressional Republicans is putting more cash in the hands of consumers through a temporary payroll-tax cut and an extension of unemployment insurance for the long-term unemployed. It is also trying to address one of the biggest impediments to the recovery — the reluctance of companies to invest their piles of cash in new plants and equipment — by granting tax incentives for business investment.

The measured optimism is reminiscent of the mood a year ago, when the economy seemed to be reviving, only to stall again in the spring amid widespread fears caused by the debt crisis in Greece and other European countries.

Even so, economists are increasingly upbeat about the outlook, saying that while the economy in 2011 will not be strong enough to drive unemployment down significantly, it should put the United States on its soundest footing since the financial crisis started an economic tailspin three years ago.

[Beet]

What's that they say about bankers, to be a successful banker, it is not that you don't fail, it is that when you do fail, you fail in the proper and normal way? The same with economists. If they're all wrong, none of them can be singled out for end-of-career. On the other hand if one of them goes out on a limb and says the recovery won't strengthen, and is wrong, he or she hurts their career.

I'm sure an economic model can be constructed showing why the opinions of economists can't be trusted.

In another word: Europe.

[CARLHAYDEN]

What's that they say about bankers, to be a successful banker, it is not that you don't fail, it is that when you do fail, you fail in the proper and normal way? The same with economists. If they're all wrong, none of them can be singled out for end-of-career. On the other hand if one of them goes out on a limb and says the recovery won't strengthen, and is wrong, he or she hurts their career.

I'm sure an economic model can be constructed showing why the opinions of economists can't be trusted.

In another word: Europe.

You make some very good points.

It seems to me that the prognosis for the American economy in 2011 will be very mixed.

[opebo]

Why do you fellows cling so unreasonably to your gloom-and-doom?  Don't worry, even though the recovery will (obviously) strengthen for the next year or two, life will still s**k.

[phk]

Ten Economic Questions for 2011

http://www.calculatedriskblog.com/2010/12/ten-economic-questions-for-2011.html

Just some questions looking forward to next year:

1) House Prices: How much further will house prices fall on the national repeat sales indexes (Case-Shiller, CoreLogic)? Will house prices bottom in 2011?

2) Residential Investment: It appears residential investment (RI) bottomed in 2010, and will probably make a positive contribution to GDP growth in 2011 for the first time since 2005. RI is mostly investment in new single family structures, multifamily structures, home improvement and commissions on existing home sales. Historically RI has been the best leading indicator for the economy, but the growth in RI will probably be modest because of the large overhang of excess housing units. How much will RI grow in 2011?

3) Distressed house sales: Foreclosure activity is very high, although activity has slowed recently - probably because of "foreclosure gate" issues. The number of REOs (Real Estate Owned by lenders) is increasing again, although still below the levels of late 2008. How much will foreclosure activity pick up in 2011? Will the number of REOs peak in 2011 and start to decline?

4) Economic growth: After I took the "over" for 2011 back in November, a number of analysts have upgraded their forecasts. As an example, Goldman Sachs noted Friday:
The US economic outlook for 2011 has improved further with enactment of the fiscal compromise, as well as a stronger trend in recent data. As we forewarned, we are revising up our forecasts to incorporate this news and now expect real GDP to rise 3.4% in 2011 and 3.8% in 2012 (up from 2.7% and 3.6%) ...
It does appear GDP growth will increase in 2011, although GDP growth will probably still be sluggish relative to the slack in the system. How much will the economy grow in 2011?

5) Employment: The U.S. economy added about 87 thousands payroll jobs per month in 2010 through November. This was extremely weak payroll growth for a recovery. How many payroll jobs will be added in 2011?

6) Unemployment Rate: The post-Depression record for consecutive months with the unemployment rate above 9% was 19 months in the early '80s. That record will be broken this month, and it is very possible that the unemployment rate will still be above 9% in December 2011. This high level of unemployment - and the number of long term unemployed - is an economic tragedy. The economy probably needs to add around 125 thousand payroll jobs per month just to keep the unemployment rate from rising (payroll jobs and unemployment rate come from two different surveys, so there is no perfect relationship, and the rate also depends on the participation rate). What will the unemployment rate be in December 2011?

7) State and Local Governments: How much of a drag will state and local budget problems have on economic growth and employment? Will there be any significant muni defaults?

Europe and the Euro: What will happen in Europe? When will the next blowup happen? How much of a drag will the problems in Europe have on U.S. growth?

9) Inflation: With all the slack in the system, will the U.S. inflation rate stay below target? Will there be any spillover from rising inflation rates in China and elsewhere?

10) Monetary Policy: Will the Fed expand QE2 (probably not)? Will the Fed reverse any of the Large Scale Asset Purchases? Probably not. Will the Fed raise the Fed Funds rate? Very unlikely.

OK, some of the questions were really multiple questions - and I ventured a guess on the last one.

[CARLHAYDEN]

phknrocket1k,

You raise a number of interesting points.

With respect to housing prices, I suspect you will see a bifurcated development where prices will stabilize (or even slightly rise) in a number of states while they continue to plummet in others.

Specifically, if the California loons get rid of Prop 13, housing prices there will collapse like a balloon being punctured by a round of buckshot.

With respect to state and local governments, I strongly suspect you will see a number of defaults this year.  From all the data I can obtain (and surprisingly, much of it is unavailable or in highly questionable accounting formats), Illinois is the state most likely to default.

With respect to monetary policy, the fed is totally out of control, and will likely decide to deal with state/local government defaults by issuing more money (call it QE 3).

With respect to the unemployment rate, its really hard to tell as the Bureau of Labor Statistics is constantly revising its manipulation of data.  Expect the unemployment rate for long term unemployed to increase.

With respect to economic growth and employment, businesses are waiting to see just what will happen in 2011.  Will Obamacare be found unconstitutional (individual mandate)?  Will Congress really rein in spending?  Also, the impact of developments in foreign countries (Spain and China in particular) will have a significant impact on the willingness of businesses to spend on expansion.  Finally, beyond Illinois, how many other states (California in particular) will default in 2011?

[Sbane]

phknrocket1k,

Specifically, if the California loons get rid of Prop 13, housing prices there will collapse like a balloon being punctured by a round of buckshot.

I bet a large majority even in the Bay Area support Prop 13. It's more addictive than Heroin.

[opebo]

phknrocket1k,

Specifically, if the California loons get rid of Prop 13, housing prices there will collapse like a balloon being punctured by a round of buckshot.

What utter rot.  The old ridiculous rightwing canard that the only thing which effects 'markets' or economic decisions is taxation. 

[phk]

Double dip in housing prices. Case Shiller is falling.

[CARLHAYDEN]

phknrocket1k,

Specifically, if the California loons get rid of Prop 13, housing prices there will collapse like a balloon being punctured by a round of buckshot.

What utter rot.  The old ridiculous rightwing canard that the only thing which effects 'markets' or economic decisions is taxation. 

Definitely NOT the "only thing," but it can (and often is) a substantial factor!

[Sbane]

Double dip in housing prices. Case Shiller is falling.

Seems like the big cities are holding up better, even though the 10 city index also includes hard hit areas like Las Vegas and South Florida. I wouldn't be surprised if house prices stabilize on the coasts but continue to slowly fall in the rust belt.