With the fourth quarter of 2011 racking up better-than-expected sales gains both in on-line and brick-and-mortar stores, and some encouraging reports from homebuilders and on employment, the US economy going into 2012 looks to be getting into position for a stronger year than the one we’ve just lived through. Don’t count on it, according to Fannie Mae’s market analysis group.
The economic outlook for 2012 is probably weaker than it appears right now, says Fannie’s chief economist:
Despite recent near-term improvement, the housing market will likely remain subdued next year – a reflection of the winter season, an expected slowdown in economic activity, and a potential increase in distressed sales. Moreover, we expect that the country’s fiscal problems will be hotly debated over the coming year and will weigh on the market. The very large fiscal impact of pending tax and legislation decisions will likely tamp down overall growth expectations for 2012.
But the biggest risk to the US economy is the ongoing Eurozone debt crisis. Fannie Mae’s economists believe that the situation may be worse there than meets the eye:
The Group expects that the euro zone has slipped into recession in the current quarter and will likely remain in recessionary territory through the first half of next year, which will likely result in ongoing volatility in the U.S. during 2012.
That volatility will tamp down job creation and could lead to a reversal in the recent declines in the overall unemployment rate. Businesses will be reluctant to hire if there is no sustained pick-up in demand. And unless unemployment can be reduced, the US economy will do no better than just sputter along again next year.
We recently noted how the same sort of 2012 forecast from Freddie Mac seemed a bit too optimistic.