Economist Sees Stronger 2012 For Consumers

The U.S. economy showed surprising resilience in the last part of 2011 and at least one economist expects that trend to continue in 2012, thanks to growing confidence on the part of consumers.

“The economy ended 2011 on a high note,” said economist Joel Naroff, in his annual forecast for the new year. “If economic activity is to accelerate, the consumer has to re-engage and that is happening. While growth during the summer was disappointing, households are spending money again. Whether it was Black Friday weekend, Cyber Monday or any other major sales event, the comparisons with 2010 numbers were really good.”

All of that bodes well for the new year, but Naroff notes that Europe's debt crisis remains the big unknown and a potential threat to the global economy. And the threat, he says, is very real.

“Greece is bankrupt and other countries are having difficulty meeting their responsibilities,” said Naroff. “The European monetary union must also become a fiscal grouping but herding the cats is difficult. Not many nations want to give up some of their budgeting freedom even though that is necessary if the Euro is to survive.

2011 started this way

Naroff says circumstances can quickly change, point out that 2011 also started on a note of strong optimism.

“But then gasoline prices broke the critical $4.00 a gallon level and consumers got worried,” he said. “There was also a divisive debate over the debt ceiling, a downgrade of the U.S. debt, huge market volatility, a devastating tsunami which cut the Japanese supply chain and the European sovereign debt crises. When you come to think about it, the continued growth of the U.S. economy is amazing and shows just how resilient it is.”

Peering into his crystal ball, Naroff says he expects Europe to do just enough to stave off a financial crisis, though it might not spare them a recession. But he doesn't expect the U.S. to slip back into a recession this year.

“I am optimistic about 2012 and my forecast reflects that,” Naroff said. “As long as Congress passes the payroll tax extension, growing consumer spending should cause hiring to rise and by mid-year we could be seeing solid, though maybe not spectacular job gains.”

But that might be just enough, he says, to help consumers overcome their job insecurity and start spending again. And an uptick in consumer spending, he says, might convince cash-flush businesses to start spending and investing again.