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News : US Economy Last Updated: Feb 13, 2012 - 7:28 AM


Dr Peter Morici: New Optimism in US; Retail sales, housing and manufacturing may indicate stronger growth, more jobs
By Professor Peter Morici
Feb 13, 2012 - 7:19 AM

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President Barack Obama and Vice President Joe Biden talk with former Representative Gabrielle Giffords (recovering from an assassination attempt in 2011) and her husband, Mark Kelly, after the President signed H.R. 3801, the Ultralight Aircraft Smuggling Prevention Act of 2012, in the Oval Office, Feb. 10, 2012. This bill is the last piece of legislation that Giffords sponsored and voted on in the US House of Representatives.

Dr Peter Morici: Optimism is afoot that US economic activity and jobs creation are picking up from the anemic pace that so far has characterized the economic recovery.

Reports about innovative manufacturing and firms bringing production jobs back to America, the boom in onshore oil and gas development, stronger auto sales and profits, and rising stock prices are lifting assessments for 2012.
 
In January, forecasters expected fourth quarter growth, when finally tallied, to be a bit better than 3%, but for the pace to slow to closer to 2% the first half of 2012. 

Essentially, they reasoned, in the closing months of 2011, consumers increased spending faster than incomes grew; hence, credit card debt and auto loans would crimp disposable income and shopping in the New Year. And the foreclosure settlement between the largest banks and states attorneys generals notwithstanding, the hangover of millions of unsold would continue to dampen new home purchases and residential construction—the latter being a major driver of robust economic recoveries in years’ past.

However, jobs creations was stronger than expected in December and January boosting household incomes, and weekly unemployment claims are falling closer to levels associated with a genuinely healthy economy. 

By dint of policy genius or good luck, President Obama may be playing a better hand than anticipated going into the critical first months of his reelection campaign.

Tuesday, the Commerce Department releases retail sales. After registering hardly any gain in December—holiday shoppers reveled around Black Friday and Cyber Monday and then pulled back in the weeks before Christmas—economists are expecting a robust jump for January of about 0.7% overall and 0.5% net of auto sales. Higher gas prices will play some role but gains in retail sales approaching those levels would indicate that 3% GDP growth in the fourth quarter was not a one off, and consumers saw the crocuses before the economists—what else is new!

Also, much has been made of the overhang in consumer debt from the financial crisis and the housing market collapse, but consumer debt bottomed last April, and it appears that working Americans feel more secure about their jobs and willing to take out car loans and purchase other durable goods on credit.

Thursday, Department of Housing and Urban Development releases January housing starts, and economists expect that to rise to about 2.7% from December. More importantly, economists expect a gradual improvement in residential construction throughout 2012 and 2013, despite the availability of so many existing homes priced below replacement cost.

The reasoning is simple. Many dwellings built during the boom years—whether now offered for sale by banks or homeowners wishing to move—are in the wrong locations or badly configured. Much of that housing was premised on cheap energy—far from jobs and requiring long commutes and expensive to heat; hence, those are not attractive to young buyers.

Also, young professionals are more strapped these days—starting salaries adjusted for inflation are lower. Many young workers may need to move to stay employed and are wary of being tied to a house they may not be able to sell. Hence, more young families are opting to rent.

The new emphasis on smaller, better located homes and renting are instigating construction closer to cities and redevelopment, and multifamily dwellings. Hence, economists expect housing starts to increase 8 or 10% a year.

With consumer spending and construction showing more bounce, it may not be time to break out the champagne—good jobs may be more plentiful but still not sufficiently abundant; however, the economy seems to be performing better. Also, manufacturing has been the bright star of the recent recovery.

Europe is entering a long recession, China is pulling out all the protectionist corks to stave off slower growth, and both will slow US exports and worsen the trade deficit. Ditto for rising oil prices. However, US growth appears to be much more independent, resilient and robust than expected during much of 2011 when the flash crash, earthquake in Japan and Europe’s financial woes had policymakers pixilated and casting blame on events beyond their control.

On Wednesday, the Federal Reserve releases January industrial production, which was lackluster in the fourth quarter, but for strong performance in mining—which includes all those onshore energy projects—and manufacturing. Economists expect that pace to pick up, but watch in particular the manufacturing sector. Repeated strong gains are needed to confirm that insourcing is taking hold, albeit gradually, and American firms are finding enough creative ways to produce more domestically and fire up growth significantly.

This week watch retails sales, housing starts and industrial production—they will tell much about whether the economy is finally moving into second gear. 

Peter Morici,

Professor, Robert H. Smith School of Business, University of Maryland,

College Park, MD 20742-1815,

703 549 4338 Phone

703 618 4338 Cell Phone

pmorici@rhsmith.umd.edu

http://www.smith.umd.edu/lbpp/faculty/morici.html

http://www.smith.umd.edu/faculty/pmorici/cv_pmorici.htm

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