New Year Brings Glimmers Of Economic Hope

January 1, 2011

Marilyn Geewax

The old year could not have ended soon enough for the millions of Americans who spent 2010 struggling to find jobs or avoid foreclosure notices. Now it's a new year, and many economists are seeing reasons for optimism.

They note that consumer expenditures have been rising for half a year, and take-home pay has increased 3.4 percent over the last 12 months. Manufacturing also is perking up, with orders for civilian capital goods rising briskly.

The upticks have prompted economists to raise growth estimates for 2011. Surveys of economists show most now expect an expansion rate of 3 percent to 3.5 percent in 2011. That pace would be up sharply from the start of 2009, when the recession was deepening and the economy shrinking by more than 6 percent.

Still, the 2011 pace of expansion will not be quick enough to provide paychecks for all of the 15 million workers seeking employment. As a result, most economists are estimating the current 9.8 percent unemployment rate will ease only slightly, down to about 9 percent for the year.

On the housing front, most see a recovery coming, but not until later in the year. Mark Zandi, the chief economist of Moody's Analytics, said, "Housing hits bottom in 2011."

Zandi expects more price declines and foreclosures in the first half of the year. But by the second half, "I think the price declines will be over," he said. "By the end of the year, [the market will see] some price stability, and by 2012 some price growth."

Consumer prices could be a wild card for 2011. Some economists fear consumer demand will remain so slack that prices could fall in the new year.

But other economists worry prices will shoot up. Oil prices have been rising sharply in recent weeks, and crop prices have jumped, too. That could point to significant food and fuel inflation in 2011. If U.S. consumers end up having to spend more on gasoline and groceries, they would have less money for making the mortgage or buying clothes. And that would hurt the recovery.

Forecasters generally are predicting U.S. stocks will gain 10 percent to 20 percent in the new year. Historically, the third year of a presidential term is a good one. But there are risks -- share prices could suddenly plunge because of profit-taking or a currency crisis.

But on balance, economists are not focused on the dangers for 2011. Their outlook is positive -- with forecasts calling for decent economic growth, fairly stable consumer prices and rising stock prices. Copyright 2011 National Public Radio. To see more, visit http://www.npr.org/.