The U.S. Economic OutlookMay 15, 2012
During the Western Region 2012 Spring Meeting, Dr. Esmael Adibi, Director of the A. Gary Anderson Center for Economic Research and Anderson Chair of Economic Analysis at Chapman University, provided an update on the U.S. economic outlook.
Economic challenges facing the nation during 2011 were essentially the same as those in the previous year—debt crisis in Europe, Middle East/North Africa political unrest and oil prices and the U.S. deficit, all with the added stress of the Japanese earthquake and tsunami.
Adibi took a closer look at the five “Recession and Recovery Indicators,” supporting his observation of “some positive signs” and cautious conclusion that “this recovery has legs:”
- Real gross domestic product (GDP)
- Personal income
- Industrial production
- Real sales value of manufacturing, wholesale and retail sector
GDP and Industrial Production
Looking in more detail at GDP, Adibi listed the key components of this critical index and the relative contribution of each during 2011, which include consumption of more than 70 percent, government purchases of nearly 20 percent, investment of 13 percent and net exports of -3.2 percent.
After contracting 3.5 percent in 2009, real GDP increased 3.0 percent in 2010 and an estimated mediocre 1.7 percent in 2011. It is forecast to grow by 2.3 percent in 2012—still anemic and well below that needed for a robust recovery.
In terms of industrial production, Adibi noted that new orders for non-defense capital goods dove by some 27 percent in late 2008, but have since recovered to 2005-06 levels since late 2010.
Consumer spending, which took a 1.9 percent nosedive in 2009, grew from that reduced base at the rate of 2.0 percent in 2010 and an estimated 2.2 percent in 2011. A 2.4 percent growth rate is forecast for 2012. This is aided somewhat by a decrease in household debt service (as a percentage of disposable income).
Payroll employment contracted abysmally in 2008 and 2009 by a total of 8.6 million jobs, but grew by 1.03 million in 2010 and an estimated 1.84 million in 2011. Jobs are forecast to grow by an additional 2.04 million in 2012; still not nearly enough to replace the jobs lost in the meltdown but headed in the right direction.
Inflation remains rather steady at an acceptable 3.2 percent annual rate, and interest rates remain low.
But Adibi cautions that there are still some obstacles remaining in the road.
Housing starts remain slow, at an estimated 607,000 units in 2011, albeit representing the second year of slow growth from the 2009 bottom of 554,000 units. The forecast is for housing starts to grow by 3.2 percent in 2012. Construction spending remains flat.
Focusing on the western region, the projected job growth rate for 2012 ranges from a high of 2.1 percent in Oregon to a low of 0.9 percent in Nevada. The forecast for single-family housing permits for 2012 ranges from an increase of 18.7 percent in Arizona to a decline of 2.1 percent in Nevada.
Looking at bellwether California, single-family housing starts are expected to be up 17.3 percent in 2012. This is aided by a forecast 5.4 percent increase in personal income for 2012 in the Golden State. Housing prices in California continue to fluctuate around 50 percent below the 2007 peak.
Resale of existing single-family homes dove 34.9 percent in 2008 and 23.3 percent in 09, bounced back briefly at +10.6 percent in 2010, but prices are estimated to have again fallen by 6.3 percent in 2011. This index is expected to further decline by 2.5 percent in 2012.
Adibi reprised the theme of “cautious optimism,” noting that the recovery, while appearing somewhat steadier, is slow and quite sensitive to financial and geopolitical factors.