2012 economic outlook: What's in store for next year?
With the housing market and auto sales showing some signs of life, pundits predict a better economy for 2012. But the ripple from a European downturn could erode the economic pace in the US.
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Surveys also indicate that Wall Street investors are becoming more optimistic. Forty-nine percent of investment managers perceive that the stock market is undervalued, while 45 percent perceive it to be fairly valued, according to a year-end survey by Russell Investments, a global financial services firm based in Seattle.Skip to next paragraph
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One reason that the market has had a rough year up until the week before Christmas: Investors have been anticipating a global recession that may not happen, explains money manager Oliver Pursche, president of Gary Goldberg & Co., a financial firm in Suffern, N.Y.
"The markets, to a certain extent, have ignored corporate revenue and profit growth and put too much emphasis on the crisis in Europe and the slowing velocity of GDP growth," says Mr. Pursche, who expects the stock market to rise 10 percent in 2012.
During the past 100 years, the stock market has fallen during a presidential election year only three times. The last was in 2008, as America was going through the financial crisis.
Economists are assuming that Congress will extend for one more year a cut in workers' payroll taxes and will continue to offer extended unemployment benefits. At least part of that assumption came true on Friday when Congress voted to extend such benefits for two months. However, if they are not extended further, economic growth in the first half of 2012 will drop to less than 1 percent, warns Zandi. "Then nothing else can go wrong," he says.
The Moody's economist worries that, even if Congress acts, the political fight over it all will serve to remind business and the markets about the brinkmanship that played out in Washington in August during the controversy over raising the national debt ceiling. The stock market swooned, and Americans' confidence fell. Congress may face the same situation again next September.
"Once we are thrown into the middle of the election process, it becomes more and more difficult for business to step up and be more aggressive," says Zandi.
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