Economy Ends Tough 2011 On a Surprising Upswing

Economy ends tough 2011 on a surprising upswingWASHINGTON (AP) - The economy is ending 2011 on a roll.

The job market is healthier. Americans are spending lustily on holiday gifts. A long-awaited turnaround for the depressed housing industry may be under way. Gas is cheaper. Factories are busier. Stocks are higher.

Not bad for an economy faced with a debt crisis in Europe and, as recently as this summer, scattered predictions of a second recession at home. Instead, the economy has grown faster each quarter this year, and the last three months should be the best.

"Things are looking up," says Chris Rupkey, chief financial economist at the Bank of Tokyo-Mitsubishi UFJ.

When The Associated Press surveyed 43 economists in August, they pegged the likelihood of another recession at roughly one in four. The Dow Jones industrial average was lurching up or down by 400 points or more some days.

There was plenty of reason for gloom. A political standoff over the federal borrowing limit brought the United States to the brink of default and cost the nation its top-drawer credit rating.

Most analysts now rule out another recession. They think the economy will grow at an annual rate of more than 3 percent from October through December, the fastest pace since a 3.8 percent performance the spring of 2010.

Many economists still worry that the year-end surge isn't sustainable, in part because the average worker's pay is barely rising. And Europe may already be sliding into a recession that will infect the United States.

The outlook could darken further if Congress can't break the impasse blocking an extension of a Social Security tax cut for 160 million Americans and emergency unemployment benefits.

Yet for now, the economy is on an upswing that few had predicted:

- Jobs: The number of people applying for unemployment benefits came in at 366,000 last week, down from a peak of 659,000 in March 2009. Even in good economic times, the figure would be between 280,000 and 350,000.

Employers have added at least 100,000 jobs five months in a row, the longest streak since 2006. And the unemployment rate fell from 9 percent in October to 8.6 percent last month, the lowest since March 2009.

Small businesses are hiring again, too, according to the National Federation of Independent Business.

Business is up at AG Salesworks in Norwood, Mass., which helps technology companies like Motorola find new customers. The firm has hired 26 workers to restore its staff to 56, erasing the job cuts from the recession. CEO Paul Alves plans to add an employee or two a month as long as growth continues.

"I do see more confidence than I saw 12 months ago," Alves says. "But it's good, not great. Robust isn't the word I'd use."

- Spending: The holiday shopping season has turned out better than anyone expected. Sales from November through Saturday were up 2.5 percent. Americans have spent $32 billion online, 15 percent more than a year ago. Retails sales were up in November for the sixth month in a row. People are spending, in particular, on clothes, cars, electronics and furniture.

- Consumer Confidence: Americans felt better about the economy in November than they had since July, according to the Conference Board, a business group that tracks the mood of consumers.

The board's consumer confidence index climbed 15 points to 56 in November, the biggest one-month jump since April 2003. During the Great Recession, the index fell as low as 25.

"It seems like the confidence of the traditional American consumer is higher right now," says Jim Newman, executive vice president of operations at the digital marketing company Acquity Group, which has added 100 jobs since summer.

- Gas: Falling prices at the pump have freed more money for consumers to spend on appliances, furniture, vacations and other things that help drive the economy. The national average for regular unleaded has sunk to $3.21 a gallon since peaking at $3.98 in May, according to the AAA Daily Fuel Gauge.

- Inventories: Businesses are restocking shelves and warehouses, more confident that customers will buy their products. In October, their inventories were up 8.7 percent from a year earlier. An increase in inventories is expected to account for perhaps a third of growth this quarter.

The battered housing market might be showing signs of recovery. Home construction rose more than 9 percent in November from October, driven by apartment building. And the National Association of Realtors said Wednesday that sales of previously occupied homes rose 4 percent in November.

But housing is climbing out of a deep hole: The existing homes sold at an annual rate of 4.4 million - well below the 6 million that would signal a healthy housing market. And the real-estate agents' trade group revealed Wednesday that it overstated sales by 3.5 million during and after the Great Recession.

Once they peer into 2012, economists turn cautious. Bernard Baumohl, chief economist with the Economic Outlook Group, says that stronger consumer spending "is absolutely unsustainable. .... Wages have not kept pace with inflation all year."

The government says that once you adjust for inflation, weekly earnings dropped 1.8 percent from November 2010 to last month. Consumers have used savings or credit cards to finance their purchases. Once bills come due in early 2012, Baumohl foresees a cutback in spending.

Baumohl is so pessimistic that he expects the economy to shrink at a 0.2 percent annual rate in the first three months of 2012 and to end the year with no more than 1.8 percent growth.

Europe is almost sure to slide into recession, even if its policymakers find a solution to the continent's debt crisis. In the worst case, a chaotic breakup of the euro currency could ignite a worldwide financial panic.

Joe Echevarria, CEO of the accounting and consulting firm Deloitte LLP, says his company's clients are delaying hiring or expansion decisions to see if Europe's crisis will be resolved.

Another worry - again - is Washington. President Barack Obama and Republicans in Congress still had not broken their impasse Wednesday on how to extend a Social Security tax cut. Without an extension, taxes will go up $1,000 in 2012 for someone making $50,000.

Failing to extend the tax cut, combined with the end of long-term unemployment benefits and other federal budget cuts, could shave 1.7 percent points from growth in 2012, warns Mark Zandi, chief economist at Moody's Analytics.

Forecasters are also chastened by the past two years. Since the Great Recession officially ended in June 2009, the economy has stalled twice just when it appeared to be gaining momentum.

In mid-2010, businesses slowed spending sharply. This year, the damage came from protests in the Middle East that drove oil prices higher, the earthquake in Japan, budget cuts by state and local governments and the stalemate in Washington.

But Joel Naroff of Naroff Economic Advisors says he thinks the fears about next year are overblown and the economy will grow 3 percent in 2012. Next year will be all about jobs. If job growth keeps accelerating, the economy is much more likely to meet Naroff's predictions than the pessimists'.

In addition, Naroff says, that's because consumers and businesses have grown more confident. If Europe averts disaster - a crackup of the eurozone - and endures only a mild recession, as Naroff expects, the impact on the United States will be minimal, he says.

"If you stopped the average person on the street and asked, 'Are you slowing your spending because of what's happening in Europe?' they'd ask, 'What planet are you from?'"

___

AP Business Writer Christopher Leonard in St. Louis contributed to this report.

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32 Comments

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Danny

THE REAL STORY IS THE DOLLAR! If the dollar falls, as the worlds currancy,which it will.The value of the dollar will fall faster than Gingrich's ratings. THEN YOU CAN HOLD ON FOR ONE BUMPY RIDE BOYS AND GIRLS!

December 23 2011 at 9:36 AM Report abuse rate up rate down Reply
rongeopic

What an utter load of bollocks, even the reporter on this was to afraid to put his/her name to it " Associated Press " stop treating your Public like idiots just be cause you are.

December 23 2011 at 12:48 AM Report abuse rate up rate down Reply
profits.on

Yes, the economy has grown moderately so far.

However, China’s contraction and the European’s crisis should weight on the U.S. economy next year.

The euro might fall, along with stocks.

There is a great risk in trading.

December 22 2011 at 8:54 PM Report abuse rate up rate down Reply
joey

NOBAMA GONE INN 2012

December 22 2011 at 3:58 PM Report abuse -2 rate up rate down Reply
billyjoeobama

Hammer and nails,hammer and nails,job creation is where Obama fails.

December 22 2011 at 3:04 PM Report abuse rate up rate down Reply
1 reply to billyjoeobama's comment
billyjoeobama

Well in America anyway China is doing exceptionally well.

December 22 2011 at 3:08 PM Report abuse rate up rate down Reply
bdzdean

Well doesn't this asspres article just make ya feel all warm and fuzzy inside. I think not.

Consumers start spending a few extra dollars "for holiday gifts" no doubt dollars that most have been saving for the past 11 months.

Unemployment filing(s) have gone down a bit. Now, is this due to thousands of individuals benefits expiring, or individuals who were part time employees "who don't even qualify to apply for unemployment" And not to mention all the unemployed individuals who just gave up trying to find a job.

I don't know where these writers get their information from, but they really need to base their articles on factual information, as opposed to fictional wanna give readers a warm and fuzzy feeling holiday read.

December 22 2011 at 2:31 PM Report abuse +1 rate up rate down Reply
aking32131

Was this not written by some liberal idiot or what. Our business has been cut in half over the last 3 years and so has our staff. We do not want to hire more because our labor burden has gone up 45%. Not to mention that my weekly health insurance bill has raised from $125/wk to $226 and every week our grocery bill has gone up at least $10. BUT THINGS ARE GETTING BETTER (starting November 2012)

December 22 2011 at 1:42 PM Report abuse -1 rate up rate down Reply
kennington8

can you believe goober lip is standing up in front of the people of this country and saying he is the 4th beat president ever, what a joke

December 22 2011 at 12:52 PM Report abuse rate up rate down Reply
1 reply to kennington8's comment
lneslusan

he's a legend in his own mind!

December 22 2011 at 4:19 PM Report abuse rate up rate down Reply
cherofnc

Let's just not celebrate until say March or April. We still lhave all those Christmas bills coming due, after Christmas retail lay offs in mid Jan., gas will soon be going up cause oil is almost at $100 again, and if these housing starts are going to seriously hurt home sales already on the market.

December 22 2011 at 12:13 PM Report abuse +2 rate up rate down Reply
ragtophemi

Are we on crack or just another idiot, lying, pinko media man from the I love Obama mold. My shop had 8 employees when He took office, been doing exotic cars for 30 years.Best in south Florida, bar none! 1 by 1 all My accounts went belly up. Now I have 1 employee paint is 400.00 a gallon and I am nearing bankrupcy as well as My shop, My home will be going into foreclosurer next. Oh Yeah, things are great. Hows Your life You IDIOT!!!!!!!!!!!!!

December 22 2011 at 11:07 AM Report abuse +2 rate up rate down Reply
2 replies to ragtophemi's comment
Mickylitz

ragtophemi

Unfortunately many folks are in he same boat and it won't get any better but only worse if we don't stop those liberal bastards from ripping us off and selling our country out..
Though measures are needed for tough times and we can't get much lower with this bunch.

December 22 2011 at 12:12 PM Report abuse -1 rate up rate down Reply
kennington8

your so right, this was written by an obama democrat for sure!!!

December 22 2011 at 12:50 PM Report abuse -1 rate up rate down Reply