2011 Might Be a Breakout Year for the U.S. Economy

By Kliesen, Kevin L. | Business Perspectives, Winter 2011 | Go to article overview

2011 Might Be a Breakout Year for the U.S. Economy


Kliesen, Kevin L., Business Perspectives


[ILLUSTRATION OMITTED]

The U.S. economy's recovery from the 2007-2009 recession has been rather anemic by historical standards. During the first four quarters of the recovery (from the third quarter of 2009 to the third quarter of 2010), real GDP increased by only about 3.3 percent, which is roughly half as much as the typical post-WW II recovery. Most disappointingly, private job gains remain exceptionally weak, and the unemployment rate was nearly 10.0 percent at the end of 2010. Most forecasters expect to see only a grudgingly slow decline in the unemployment rate in 2011. In many ways, the lack of job growth in the current recovery parallels the exceedingly weak job gains that occurred following the 1991-1992 and 2001 recessions. Accordingly, the structure of the U.S. labor market in the immediate aftermath of the recession may be changing in important ways that are not yet understood. At the same time, many in the business and financial communities have regularly cited uncertainty about the economic, political, and regulatory landscape as a reason for their reluctance to hire, invest, and lend.

[GRAPHIC 1 OMITTED]

Despite these hurdles, business conditions are on the mend, and economic activity is expanding at a modest pace. Importantly, the U.S. economy's momentum appears to have accelerated in the fourth quarter of 2010. Eventually, as the economy gathers steam, the layers of uncertainty plaguing firms, households, and financial markets will ebb, paving the way for rising levels of employment and real incomes. The temporary extensions of the 2001 and 2003 tax cuts and another year of extended unemployment insurance benefits, as well as a temporary reduction in the payroll tax and a business investment tax credit, should also give the economy a boost--if only temporarily and at the expense of increasing the size of the already large federal budget deficit. Importantly, though, the recovery will be assisted by the economy's natural recuperative forces, improvements in financial conditions, and an expansion of the global economy.

On balance, then, the U.S. economy's growth rate should exceed its long-run average (about 3.0 percent) in 2011, with continued low and stable inflation. If growth surprises to the upside, then the unemployment rate will fall by more than expected; if not, it will continue to drift downward at a turgid pace. But, there are risks, which include the possibility of spending cuts and higher taxes to reduce yawning budget deficits at the federal, state, and local levels. In addition, because of the size of the Federal Reserve's balance sheet and rising commodity prices, there is a budding amount of disagreement among forecasters about the direction of inflation over the next few years. For 2011, though, most forecasters continue to see relatively low and stable inflation rates. In the remainder of this article, I will focus on some of the more important details about the outlook for the U.S. economy in 2011.

Hurdles Become Lower

Construction remains the economy's soft spot. In a typical economic recovery, housing construction is a key driver of growth. Because of the housing bust and the large number of foreclosures, there is a sizable inventory of houses that limits the need for new construction. This excess supply also helps to put downward pressure on house prices. An additional factor that weakened prices significantly further over the second half of 2010 was the expiration of the homebuyer's tax credit, which triggered an appreciable pullback in home sales. However, home sales and new housing starts have recently stabilize-albeit at a low level--and forecasters expect housing construction to contribute positively to real GDP growth in 2011 for the first time in six years. As housing begins to recover, prices should also begin to stabilize. However, the probability of any significant increase in home prices nationally in 2011 must be considered rather small. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

2011 Might Be a Breakout Year for the U.S. Economy
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.