Improved Economy, Employment Spurts and Expansion in Cards for ’12

Following a tumultuous year on the domestic and global stages, the outlook for the American economy improved in the final months of 2011.

The question of a double dip into recession has largely faded from the minds of investors, even if policymakers remain attentive to signs of weakness in the patterns of renewed growth. In the final tally, the economy will have expanded by approximately 1.8 percent in 2011. From the end of the recession through the third quarter, the economy expanded by 5.5 percent, less than half the 12.2 percent expansion that has followed previous recessions over a comparable span of nine quarters. That is a disappointing comparison that, in the baseline analysis, should give way to a marginally faster pace of expansion in 2012.

Sam Chandan.

A degree of caution is warranted when setting confidence intervals on updated projections. The economic trajectory remains susceptible to discrete shocks, as well as to the potentially corrosive impact of political gridlock in the United States and Europe. The past few years are instructive in this regard, since many investors and economic forecasters evinced a similar rise in sentiment in early 2011 and, two years before, in early 2009. In its February 2011 projections, for example, Freddie Mac forecast that real GDP growth would average 3.8 percent in 2011 and 4 percent in 2012. Roughly two years before, in March 2009, Fed Chairman Ben Bernanke was citing evidence of “green shoots.”

Regrettably, upside projections for economic output, business activity and jobs did not survive the gauntlet of those previous scenarios’ economic and political realities. Apart from the earthquake befalling Japan, many of the drags that confounded investors in 2011 remain features of the marketplace today.