U.S. economy stabilizes, even looks up slightly, as 2011 ends
Adapting to structural change in the U.S. economy will not be quick and it has been and will continue to be painful. At least as we close 2011, there are some signs that a more positive slant can be contrived, real or not, and a fall into recession again near term is unlikely. Of course there are still plenty of challenges that defy easy solutions and our Congress would be defied by a game of Crazy Eights.
Unemployment, underemployment, and those who have given up trying to find employment is a number that is relevant and is generally viewed as be in the mid to high teens percentage area. The actual unemployment figure at 8.6% is a directional improvement but it is unlikely to crack 8% in 2012. This is the result of both technology development and globalization. One major economist postulated that a factory that required 1000 workers 20 years ago can produce the same output with 100 workers today due to advances in technology. As multinational growth of our corporations expanded, it made sense to manufacture closer to clients in other countries, as inside other countries. Taking advantage of cheaper labor in emerging market countries was the kicker to these trends, and none of them are going away soon.
This country will never be a country with manufacturing once again building the broad middle class, if only because of technology development. Our success rests on innovation, research, design, and service, in marketing, product development, distribution, and content. Manufacturing is beginning to show some rebirth perhaps, and it will grow as U.S. wages have been coming into alignment with other parts of the world, but it simply will not be the dominant engine of employment growth.
The other main weight on the domestic economy is real estate. Residential real estate is nowhere near the rinse cycle on cleaning up the damage from the sub-prime and then some mess. At some point mere demographics will require that new housing be built but as Congress is busy coming up with plans to potentially kick 11 million workers out of the country and keep as many immigrants as possible from coming in, that point may be pushed further out than would normally be expected. Commercial real estate, like all real estate really, is a matter of location but as Sears, K-Mart, Borders, Circuit City, Blockbuster, other big regional stores like Fortunoffs on Long Island and many small main street businesses have shut down or are in the process of doing so, there is a growing glut of retail space available to add to that already available in many sagging areas of the country. Manhattan, Silicon Valley, Austin, Research Triangle, and other growth areas need not worry about this, but much of the country has a growing problem.
All of this does not mean that financial markets are in for a terrible 2012. To the contrary, most of this misery is already priced into the market for stocks and the Fed has marked down fixed income rates to compensate so that's already in the mix as well. If the 85% of people who are fully employed at their potential are managed in a way to increase productivity and U.S. products stay globally competitive, which they increasingly are, then the stock market can rise even if the overall economy is not improving in any dramatic way.
Stepping back, today's problems of a diminishing middle class, stagnant wages, and the need for less employees is not just a phenomenom of the "Great Recesssion". The trends that have us where we are today have been in place for two decades or more. From the mid-1990's to 2001 they were masked by the internet/technology bubble and, with a brief period to catch our breath, they were then masked by the residential real estate and credit bubble. So when pay the piper time came in late 2008, there was a long way to fall. Trends that took over 20 years to develop will not be addressed in one year or two years, so 2012 will be a year in which the economic challenges continue against the backdrop of the November elections.
The snail's pace progress of 2011 can be expected to continue in 2012 and American entrepreneurship and innovation is certainly not dead. There will be success stories and opportunities will develop. The economy can show some continued growth and the official unemployment levels can continue to improve slowly. Credit spigots will drip a little more than now, and optimism will grow in areas of the country that represent concentrations of positive economic activity.
No "big bang" of government designed economic stimulus, no infrastructure bank of public/private partnerships, and no surge in home grown economic activity can be expected near term. It's an election year, and somehow much of the public as well as all Republicans believe that austerity is the key to growth. Does that make sense? Growth is what we need, it's the only way out, and it's all on the private sector's shoulders amid an uncertain tax environment and still developing regulatory frameworks on many fronts, especially in the financial sector.
So we wait. We watch Europe. We watch China. We, collectively, watch what we spend and look for opportunities to improve our prospects.
And that's the optimistic outlook for 2012!
Unemployment, underemployment, and those who have given up trying to find employment is a number that is relevant and is generally viewed as be in the mid to high teens percentage area. The actual unemployment figure at 8.6% is a directional improvement but it is unlikely to crack 8% in 2012. This is the result of both technology development and globalization. One major economist postulated that a factory that required 1000 workers 20 years ago can produce the same output with 100 workers today due to advances in technology. As multinational growth of our corporations expanded, it made sense to manufacture closer to clients in other countries, as inside other countries. Taking advantage of cheaper labor in emerging market countries was the kicker to these trends, and none of them are going away soon.
This country will never be a country with manufacturing once again building the broad middle class, if only because of technology development. Our success rests on innovation, research, design, and service, in marketing, product development, distribution, and content. Manufacturing is beginning to show some rebirth perhaps, and it will grow as U.S. wages have been coming into alignment with other parts of the world, but it simply will not be the dominant engine of employment growth.
The other main weight on the domestic economy is real estate. Residential real estate is nowhere near the rinse cycle on cleaning up the damage from the sub-prime and then some mess. At some point mere demographics will require that new housing be built but as Congress is busy coming up with plans to potentially kick 11 million workers out of the country and keep as many immigrants as possible from coming in, that point may be pushed further out than would normally be expected. Commercial real estate, like all real estate really, is a matter of location but as Sears, K-Mart, Borders, Circuit City, Blockbuster, other big regional stores like Fortunoffs on Long Island and many small main street businesses have shut down or are in the process of doing so, there is a growing glut of retail space available to add to that already available in many sagging areas of the country. Manhattan, Silicon Valley, Austin, Research Triangle, and other growth areas need not worry about this, but much of the country has a growing problem.
All of this does not mean that financial markets are in for a terrible 2012. To the contrary, most of this misery is already priced into the market for stocks and the Fed has marked down fixed income rates to compensate so that's already in the mix as well. If the 85% of people who are fully employed at their potential are managed in a way to increase productivity and U.S. products stay globally competitive, which they increasingly are, then the stock market can rise even if the overall economy is not improving in any dramatic way.
Stepping back, today's problems of a diminishing middle class, stagnant wages, and the need for less employees is not just a phenomenom of the "Great Recesssion". The trends that have us where we are today have been in place for two decades or more. From the mid-1990's to 2001 they were masked by the internet/technology bubble and, with a brief period to catch our breath, they were then masked by the residential real estate and credit bubble. So when pay the piper time came in late 2008, there was a long way to fall. Trends that took over 20 years to develop will not be addressed in one year or two years, so 2012 will be a year in which the economic challenges continue against the backdrop of the November elections.
The snail's pace progress of 2011 can be expected to continue in 2012 and American entrepreneurship and innovation is certainly not dead. There will be success stories and opportunities will develop. The economy can show some continued growth and the official unemployment levels can continue to improve slowly. Credit spigots will drip a little more than now, and optimism will grow in areas of the country that represent concentrations of positive economic activity.
No "big bang" of government designed economic stimulus, no infrastructure bank of public/private partnerships, and no surge in home grown economic activity can be expected near term. It's an election year, and somehow much of the public as well as all Republicans believe that austerity is the key to growth. Does that make sense? Growth is what we need, it's the only way out, and it's all on the private sector's shoulders amid an uncertain tax environment and still developing regulatory frameworks on many fronts, especially in the financial sector.
So we wait. We watch Europe. We watch China. We, collectively, watch what we spend and look for opportunities to improve our prospects.
And that's the optimistic outlook for 2012!
posted by John Borden at 3:54 PM
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