|Outlook for the Economy|
|by | 12-27-2011|
Even more surprising than the overall growth rate was the pattern of that growth rate throughout the year. Growth plunged to 0.4% in the first quarter and accelerated throughout the year with the fourth quarter now likely to produce annualized growth well in excess of 3%.
A combination of poor weather, a shocking jump in oil and gas prices due to political unrest in the Middle East, and supply-chain disruptions related to the Japanese tsunami all contributed to the pitiful level of economic growth in the first half. As those factors reversed themselves in the second half, economic growth spiked. When the first half and second half are combined, I think the overall 2% growth rate is more representative of the state of the U.S. economy than the first half doldrums or the second half spurt.
Although the overall GDP for 2011 was below my forecasts, given all the first-half shocks, followed by more severe sovereign debt issues in the second half, I am not that disappointed with the U.S. economic performance. I may have started the year too bullish, but I didn't cave into the chorus of economists who were overly focused on manufacturing data and calling for another recession late this summer. Instead I remained focused on the U.S. consumer, which continued to power ahead throughout 2011.
More Upsides Than Downsides (Though the Downside Is Scary)
Recent news seems to support each of these potentials. U.S. oil production is now growing again after years of decline, led by increased production in North Dakota and Texas and facilitated by higher prices and new technologies.
U.S. auto production is on the mend as consumers can't put off the purchase of a new automobile indefinitely. Further fueling U.S. auto production is news out of Honda HMC that the company will produce substantially more cars in the U.S. in the years ahead, many of those for export from U.S. plants.
Boeing finally appears on the cusp of a major production jump, especially for its 787 Dreamliner. However, Boeing has been optimistic in the past only to hit snag after snag, so no one really believes them. But with real deliveries under way now and commercial flights a reality, I think the investment community is underestimating the ability of Boeing to boost the U.S. manufacturing economy in a major way.
Finally, the housing market seems to be ambling its way out of the valley of death, too. Housing starts, housing permits, and builder sentiment have all been improving over the past several months. Inventories are approaching normal levels, and affordability is at a record high even as rents continue to go up in most markets. I'm not calling for a boom, mind you. But I think for once, housing is going to be a positive for the economy in 2012. I would be shocked if housing starts in 2012 aren't meaningfully ahead of those in 2011.
Corporations Are Scared Even as Consumers Accelerate Spending
So, If U.S. Growth Were to Accelerate, Could Corporations Handle It?
Europe Remains at the Top of the Worry List
One bit of good news is that Boeing resolved the labor issue with its South Carolina plant and Dreamliner production in the last three months. However, the fight and the Labor Relations Board intervention probably had the desired effect of giving any manufacturer pause about shifting manufacturing to right-to-work states. Again, I am not saying any of this is good or bad for the long term, only that investors really need to keep a close eye on government actions.
A Savvy Consumer May Limit Profit Growth
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