"The US growth outlook has brightened significantly in recent weeks. As a result, we have raised our sights for 2011, calling for real GDP growth to average 2.7% for the year versus 2.0% previously. We expect growth to pick up further in 2012—to 3.6% on average for the year—though judgments that far out are clearly tentative.
The main reason: recent data reveal a firmer trend in domestic final demand and suggest that it will be sustained via improvements in net hiring and credit availability. Meanwhile, the downside risk of a material tightening in federal fiscal policy—i.e., failure to extend expiring tax cuts—has diminished significantly. Although our revised outlook implies a meaningful drop in the jobless rate, it will remain high by historical standards, ending 2012 at about 8½%. With other measures of utilization also likely to show significant excess capacity, we expect core inflation to remain at the ½% year-to-year rate in 2012 that we have been forecasting for year-end 2011."
- An increase in the forecasted growth rate of consumer consumption and business activity.
- Larger than expected industrial capital spending.
- Relatively low inflation.
- Weak housing sales and near zero building activity.
- Tepid job growth.
- Uncertainty about changes to the Obama healthcare plan and financial reforms by the new Congress.
|Krause is bullish|