America Archives 2010 in Growth (but without Jobs) and Looks to 2011 with Optimism

“The U.S. economy continues to improve and consumption is good.” The Beige Book released in early December by the Federal Reserve has profusely spread optimism. Manufacturing activity has “continued to expand in almost all districts”; consumers continue to keep a “positive” pace, although consumption is concentrated mainly on the goods of primary need. The Beige Book came together with the report on the labor market, which showed in November an increase of 93,000 jobs in the private sector, and the data on the record sales (more than $1 billion) on Cyber Monday (the first Monday following Black Friday and the day that traditionally begins the Christmas online shopping, after Thanksgiving Day).

Further optimism also came from the latest fiscal measures adopted by the Obama administration — cuts of $858 billion in 10 years — taken in agreement with the Republican opposition. To support the optimism of analysts (notwithstanding the continuing high level of unemployment), there is also the continuing improvement in consumer confidence, the increasing profits of large companies and the strong performance on Wall Street, which this week saw the Dow Jones touch the highest point in the last two and a half years.

Recession Now Permanently Archived

The recession — officially ended in June of 2009 — thus seems increasingly remote, as demonstrated by the trend of GDP, which closed the third quarter with an increase of 2.6 percent, up by almost one percentage point compared to the second quarter of the year, though slower than the 3.7 percent scored in the first three months of 2010. According to Nariman Behravesh, chief economist at IHS Global Insight, the fourth quarter will end with an increase of more than 3 percent thanks to improved business and consumer sentiment.

Economists and Policy Makers Revise Their Estimates Upward

The conviction of a sharp acceleration in U.S. growth in 2011 is increasingly popular among economists and policy makers who — as reported today by the New York Times — continue to revise upward their forecasts on the outlook for the stars and stripes economy (for example, Goldman Sachs has revised the growth estimates from 2 to 2.7 percent). Optimism was also shared by the big banks that — as the Wall Street Journal writes — after a modest 2010 (characterized by an increase of 18 percent in mergers and acquisitions: $2.76 trillion, compared to $4.6 trillion reported in 2007) see the M&A in 2011 as a great revival.

Obama: Past the Peak of the Crisis, Now to Act on the Budget

Convinced that the U.S. economy has passed the peak of the crisis, President Obama has said in recent days that the United States “must now route their public finances on a sustainable path,” reducing deficits and debt, and creating “incentives that could give rise to a larger number of innovators such as Steve Jobs” to increase the level of competitiveness of the States.

The Litmus Test in the Incoming Data in the Next Weeks

The incoming data in the coming weeks should confirm the growth spurt at the end of the year, with positive indications for the first quarter of 2011. The Chicago PMI and ISM surveys should continue to register improvements (although at levels lower than those marked in November), while the Employment Report should show an acceleration of the increase in employment and a decline in the unemployment rate. Improvements are also forecast for car sales, consumer confidence and spending in the construction industry. The litmus test on the outlook for the U.S. economy will come on Friday, January 7, with the publication of the report on the labor market, which in December should have recorded an increase in non-agricultural employment of 150,000 units.

The Support from the Federal Reserve

However, one thing seems certain: The regained U.S. economic momentum will enjoy in 2011 the support of the Fed and its policy of expansion of quantitative easing. The Institute, led by Ben Bernanke, said that it will purchase another 600 billion U.S. Treasury bonds in the long term by the second half of the year, some $75 billion a month. Within the same period, the Fed also plans to reinvest in maturing bonds, bringing the total input of cash to between $850 and 900 billion. In the meantime, interest rates remain at historic lows, with the Fed Funds in the range of 0 and 0.25 percent.