But while long-term and structural factors are likely to weigh on economic growth in the quarters ahead, the outlook isn't all bad. Investors would be remiss if they didn't consider certain "rays of light," factors that are working in the economy's favor. Here are the major positives heading into 2010:
U.S. unemployment rate is nearing its peak. Nothing symbolizes the nasty 2007-2009 recession more than the nation's high unemployment rate, now at 10.2%. It's just awful, and broader measures of joblessness -- such as those that include part-time workers who want full-time work and discouraged workers -- are above 15%.
The bright side? Unemployment is likely nearing its peak. True, the rate may rise to 10.5% or 10.7%. Historically, it goes up for at least six months after a recovery starts. But the major job-cutting period is likely over. Temporary hiring, which usually telegraphs the start of the hiring cycle, is now trending up.
What's more, the U.S. economy could see a net gain in jobs per month as early as the first quarter of 2010. Yes, we need lots of new jobs -- probably about 13 million to 15 million -- but you have to start somewhere.
Consumer confidence is rising. Although it's meandered much of the second half of 2009, consumer confidence nevertheless appears to have bottomed. As measured by The Conference Board, confidence rose to 49.5 in November, which is hardly spectacular (base year 1985 = 100). But when one considers that the index hit a record low of 25.3 as late as February, it's easy to see how far the nation has come.
In general, consumers understandably have taken a cautious, wait-and-see stance toward the economy. They're encouraged by improving business conditions and the stock market's rise, but they remained concerned about high unemployment and the lack of job creation.
And while a segment of consumers likely have permanently cut back on their spending, another large bloc is most likely just waiting for more signs of economic growth before making a purchase or two. When that occurs, that should help the economy grow at a faster pace.
Lean and mean inventories. You won't read much about "totally unsexy" business inventories in the popular press, but know this: Businesses have cut inventories about as much as they can. In fact, many have pared inventories too much, because they thought they would be left with tons of products and no buyers when it looked like the economy was headed for a second Great Depression during the financial crisis's acute stage.
And inventory declines lead to production declines, which is one reason the unemployment rate has soared. Nevertheless, those same lean inventories will provide an above-normal boost to employment and GDP in 2010, as businesses start to replenish inventories during an economic recovery. Manufacturing is already signaling the start of this cycle: Industrial production has increased for four straight months.
Corporate bond sales soared. Here's another under-the-radar statistic, but it's vital for U.S. economic health: U.S. corporations raised a record $1.171 trillion in bond sales in 2009, compared to just $874 billion in 2008, according to data compiled by Bloomberg News. Corporations took advantage of superlow interest rates to raise the money they need to expand.
The significance for investors? First, credit markets continue to heal. The U.S. Federal Reserve's facilities and guarantees are enabling corporations to get the capital they need and to borrow at reasonable rates. Second, corporations aren't going to raise money to expand if that money isn't going to be deployed. They expect to use that money to expand, start new projects and take other positive steps.
In short, companies are expecting economic growth ahead. That's good news for hiring trends. It's also obviously bullish for GDP because it tends to increase when businesses start to invest, make purchases and expand.
The stimulus is with us. The Obama administration's $786 billion fiscal stimulus package has its share of critics, but know that its aid to states and related support programs prevented a deeper recession. Equally significant: The remainder of stimulus funds will be spent in the first half of 2010, hence the package will continue to boost the economy.
The stimulus is kind of the "Rodney Dangerfield" of policy actions: It gets no respect. Or, as U.S. Rep. Barney Frank (D-Mass.) often says, "Congress gets no credit for averting something." But Americans should understand that the stimulus is helping to fill a very big GDP hole: Who knows how many states would have faced very dire circumstances without the assistance.
Make the best, ship it to the East. During the recent expansion, export-dominant economies in emerging markets came to the fore, and their mantra was "Make the best, and ship it to the West." To be sure, the economies of China, India, Brazil, etc. were too dependent on exports and remain so, and they have inadequate domestic consumption. But now it looks like another country may be joining the export party: the U.S.
We're very early in the global economic recovery cycle, but at least initially, it looks like demand in countries like China, India and Brazil is rising, with higher consumer spending. Combined with a weak dollar, this is boosting U.S. exports. If the trend continues, it will provide another (and unexpected) upward push to U.S. GDP.
Don't ignore the positive side of the ledger. No one should harbor any illusions about the size and seriousness of the economic challenge the U.S. faces as it enters 2010. To paraphrase Irving Black, the track-and-field coach at my high school, "the U.S. economy has a minor problem that nothing short of, oh, 13 million to 15 million new jobs can't solve." The task ahead is enormous.
But neither should investors ignore the positive side of the ledger: Key economic fundamentals have turned or are starting to turn in the U.S. economy's favor, as the housing, inventory, bond market and export statistics attest. Now if the U.S. economy can identify a new sector or engines of growth -- as it has done during past restructurings -- that will do much to get the great American job creation machine rolling again. That would be the final piece of the recovery puzzle.
Financial editor Joseph Lazzaro is writing a book on the U.S. presidency and the U.S. economy.