It’s time for New Year’s resolutions and for economic forecasts, which we’ve resolved not to make. But we’ve compiled a bunch of them so you can see what others are predicting, and they are all over the lot – pessimism, optimism, relief, uncertainty, great and not-so-great expectations - you’ll almost certainly find a forecast to support whatever expectations, hopes, or fears, you have for the coming year.
OVERVIEW
The optimists, convinced that the economic recovery has become self-sustaining, have found considerable support in recent economic reports, among them:
- Claims for unemployment benefits fell to their lowest level in two years in last week of the year.
- Holiday sales increased by 5.5 percent, as consumers spent more than analysts had expected.
- Manufacturing continues to show signs of strength.
- The service sector grew at its fastest pace in four years in December.
- Auto sales have reached their highest levels since the government’s “cash-for-clunkers” program ended in 2009.
- Surveys indicate that more corporate executives are planning to increase their payrolls this year.
But the pessimists have plenty of ammunition, too – most of it coming from the unemployment rate (still high and expected to remain elevated through the end of this year) and the housing market, which continues to struggle under the weight of record foreclosures and uncertainty about whether (or when) home prices will bottom out and begin to recover.
"What will happen to the US economy in 2011? If you're referring to profits of big corporations and Wall Street, next year is likely to be a good one. But if you're referring to average American workers, far from good. The two American economies - the Big Money economy and the Average Working Family economy - will continue to diverge. Corporate profits will continue to rise, as will the stock market. But typical wages will go nowhere, joblessness will remain high, the ranks of the long-term unemployed will continue to rise, the housing recovery will remain stalled, and consumer confidence will sag." -- Robert Reich, former Labor Secretary in the Clinton Administration.
“The economy is gathering momentum “The character of the recovery is a little more solid. Job growth will be stronger and that will help the consumer.” - John Silva, chief economist, Wells Fargo Securities LLC.
“The recovery in 2011 will be strong enough for us to see sustained job creation that will finally give Americans a tangible sense of an improving economy.” Phillip Swagel, chief economist for the Treasury Department during the administration of George W. Bush
“[The economy] will be off and running….The [public] policy response, in its totality, has been very aggressive, and I think ensures that the recovery will evolve into a self-sustaining expansion early in 2011.” - Mark Zandi, chief economist, Moody’s Economy.com
“Anything that spooks consumers and businesses from spending” could threaten the recovery, including “a worsening of the fiscal crisis in Europe or the increased fear that a similar crisis will soon infect U.S. cities and states.” - N. Gregory Mankiw, chairman of the Council of Economic Advisers under former President George W. Bush.
“Sadly, it all adds up to another year of relatively modest growth, not nearly enough to make much of a dent in the painfully high 9.8 percent unemployment rate.” - John Schoen, senior producer, msnbc.com, summarizing the results of MSNBC’s annual Economic Roundtable survey of leading economists.
EMPLOYMENT
Optimists are focusing on recent signs that the labor markets are improving; pessimists note that the progress is miniscule and slow. The consensus view holds that the unemployment rate, now 9.7 percent, will still be at or above 9 percent at year-end, and will be above 8 percent 12 months after that.
“There is a higher level of optimism [among employers and staffing firms] going into 2011… “There is more confidence.” - Jennifer Grasz, spokeswoman for CareerBuilder.com., noting that 24 percent of employers in a recent survey plan to hire full-time, permanent workers this year.
"A lot of people who have jobs are considering looking for new work this year. I don't know if we're going to see a huge uptick in the number of jobs, but I do think we'll see a huge surge in the number of people looking for work, even among people who are already employed." - Charles Purdy, career expert at Monster+HotJobs. More than 80 percent of respondents to a Manpower survey indicated they plan to look for a new job this year, up from 60 percent in the 2009 survey.
“Historically, unemployment rates come down slowly, so even with 4 percent growth, you would expect to see the unemployment rate come down maybe a percentage point a year, probably less….Given how high the unemployment rate is, that’s going to seem very slow.” - Alan B. Krueger, formerly top economist in the Treasury Department.
“If you go back and look at forecasts a year ago, economists generally got growth right, but they got unemployment wrong. We probably need 5 percent growth to significantly lower unemployment. It's just a question of how deep a hole we're digging out of." - John Ryding, chief economist, RDQ Economics. Ryding thinks it will be three years before the unemployment rate falls below 8 percent.
“There is some momentum in the job market, but in terms of real healing it's just an incredibly slow, painful process….I think there is just a tremendous skepticism and lack of confidence in the economy from the business sector. They just don’t really believe in the recovery. They don’t want to risk over-hiring, and that has a self-fulfilling effect." - Ethan Harris, head of developed markets economics at BofA Merrill Lynch.
HOUSING
The optimists say price declines, an improving economy and a stronger employment picture will finally trigger a home buying resurgence. Affordability will override buyer fears, convincing them that this is a good time to enter the market. Pessimists say fears are justified as home prices still have further to fall. With employment growth likely to remain sluggish this year and credit standards tight, pessimists are predicting that a housing recovery, if there is one, will be anemic, at best. Pessimists point to new and existing home sales, which continue to fall below even modest expectations, the renewed slide in home prices, and the “shadow inventory” of unsold homes created by foreclosures still to come to support their grim view; optimists note the surprising strength in the November pending sales report and the likelihood that the Fed will keep interest rates low this year to support their brighter outlook.
“The housing market is going to shock people. Once we get the ball rolling, it becomes easy to roll. The most critical thing the Fed can do, which is not easy, is to promote job growth. If we see job growth we are going to see a very strong housing market.” - Charles Lieberman, chief investment officer, Advisors Capital Management, former head of monetary analysis at the Federal Reserve Bank of New York.
"Despite rising mortgage rates, our forecast for home sales is stronger than the previous forecast, given our brighter economic growth and labor market outlook. We expect modest increases in home sales, despite recent interest rate rises, due in part to modest additional declines in home prices, and we expect people to take advantage of affordability as their employment and income outlook brightens." - Douglas Duncan, chief economist, Fannie Mae.
“Housing starts are really at rock bottom.” Housing may not provide the recovery boost it has provided in the past, but “[it’s] not going to be a drag on growth.” - Paul Dales, U.S. economist, Capital Economics, Ltd.
"Prices are going to go down a little bit more, and if there's nothing but bad news out there, [which is] what we're seeing, then that must mean that at some point we are hitting the trough, and we feel that 2011 is finally going to be that point….That doesn’t mean we’re instantly going to bounce out of the trough, [however]. …. "It's going to be a slow, bumpy ride for the next couple of years."- Scott Sambucci, vice president of data analytics, Altos Research
Excess inventory, “the mortal enemy of prices” is pushing the housing market into a double dip. “Housing normally spurs economic growth early in recoveries as this interest rate-sensitive sector responds to earlier rate cuts by the Fed. This time, it's been a dud due to the collapse in prices." - From the December investment report of A. Gary Shilling & Co. Their general conclusion: Conditions in the housing market will get considerably worse before they begin to get even marginally better.
"It's pretty clear [from the October decline in the Case-Shiller home price index] that the housing market has already double dipped,""[E]ven a 5 percent fall in home prices will push an extra 8 million in negative equity with risk of millions walking away from their home." -Economist Nouriel Roubini, president of Roubini Global Economics.
“More and more, American homeowners, sellers and buyers are tamping down their expectations for a swift recovery in the housing market and bracing themselves for a long, slow climb back to a healthy real-estate market.” -Pete Flint, chief executive, Trulia.com.
