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In 2011, better economic outlook – for some

Pundits predict healthy growth in 2011 and fewer unemployed. But housing and state budgets may struggle.

By Ron Scherer/ Staff writer / December 29, 2010

More consumer spending has lifted holiday estimates.

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The economy is looking peppier for 2011.

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Many financial experts have started to bump up their predictions for growth as they envision the economy moving at a faster pace – not a sprint, but at least no longer a leisurely jog.

Even the less-optimistic economists are now estimating almost 3 percent growth, while the more exuberant see expansion closer to 4 percent. That would be the best performance in a decade.

It wasn't that long ago that the operative adjective for the economy was fragile. But now, talk about the United States moving into a second recession is dissipating.

A move instead toward a faster economic pace could be good news for the nation's unemployed, and it could bolster business confidence. Once economic activity quickens, the cycle can build: Consumers buy products, businesses hire more people to build the gadgets that consumers buy, and new hires spend money on cars, housing, and vacations.

"I think we're approaching a sustainable economy and will hit it in 2011," says Mark Zandi, chief economist at Moody's Analytics in West Chester, Pa. "Next year we are going to be off and running, and unemployment will definitely be moving south."

Many economists, including Mr. Zandi, were far less optimistic a month or two earlier. In November, private economic forecasters, in a survey by the Blue Chip Economic Indicators, said that the gross domestic product would rise only by a modest 2.5 percent in 2011. Some economists even talked about the possibility of a "double dip," meaning the economy tips back into recession.

What happened to change the view?

One major turning point is the Obama and GOP tax-cut agreement. Add in an apparent shift taking place in consumer mentality, with many people a little more willing to buy. Finally, the stock market has improved: Since its close on Dec. 31, 2008, the Dow Jones Industrial Average is up more than 30 percent.

Even before President Obama and the Republicans made their deal on taxes and unemployment, the economy was expected to show a modest gain. But after the handshakes, economists became even more optimistic.

"What it does is reduce the uncertainty in the marketplace. It says both the Congress and the president see economic growth as important," says John Silvia, chief economist at Wells Fargo Securities in Charlotte, N.C. The tax deal will add as much as 0.3 percent to GDP in 2011, Mr. Silvia thinks.

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