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Posted: December 30, 2011

And now, for some good news

The economy's getting stronger

Jeff Thredgold

It's nice for a change to be able to talk about an American economy that is, for the moment, getting stronger. After growing at a truly pathetic real (inflation adjusted) annual rate of less than 0.9 percent during 2011's first six months, the economy grew at a revised 2.0 percent real annual rate during the third quarter.

Ironically, a downward revision for the third quarter from the initially reported 2.5 percent growth pace merely "shifted" some of that growth into the fourth quarter, where most forecasters see growth near a 3.0 percent real annual rate. That may be the peak in growth for awhile. Most forecasters see growth slowing to a 1.5-2.5 percent real annual rate during 2012, with stronger growth in the year's second half than in the first.

Stronger data has been reported in recent weeks in overall manufacturing and auto sales. Even the beleaguered housing sector has seen stronger performance, although from extremely depressed levels.

Yes, the sharp decline it the nation's unemployment rate from 9.0 percent in October to 8.6 percent in November added to the modest level of exhilaration now felt. And yes, the unemployment rate decline had more to do with 315,000 people leaving the labor force than job gains. Still, job gains reported in the household survey have been reasonably impressive.

Reasons?
• Perhaps some of the stronger economic performance is tied to the fact that even as Europe flounders, its impact on the U.S.-to-datehas been limited.

• Perhaps it is the "perverse satisfaction" we Americans feel that the more immediate global financial challenges are now being faced on the other side of the pond, versus here. We already carry enough anxiety for being the primary culprit of the 2008 global financial meltdown.

• Perhaps it is the fact that while budget deficits of the past three years are truly scary at roughly $1,300,000,000,000 each year, the political and public mood provides little to no room for even larger deficits. Political discussion has now shifted primarily to how to rein in monstrous and damaging deficits in coming years, versus what new government programs should be enacted. That is the first step.

• Perhaps it is the pent-up demand of the past few years where people drove cars longer, put off vacations, and a myriad of other things fearing the worst relative to the economy and their jobs.

• Perhaps it is the fact that even as Rome (and much of Europe) burns, the American stock market has held up reasonably well, with relative optimism being the prevalent view for 2012.

• Perhaps it's the fact that $3.50-$4.00 a gallon gasoline has not had the psychological impact it had the first time we reached those levels.

• Perhaps it's even the fact that professional sports got its act together. An exciting World Series in baseball captured the interest of millions. Following a lengthy strike/lockout/"whatever" in the NFL, the owners and players made a deal to have a full and exciting season. Even the NBA finally saw the wisdom in actually playing the game starting later this month with a 66-game season, versus the regular 82-game grind.

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The Tea Leaf is a weekly economic and financial update by Jeff Thredgold, economist for Vectra Bank Colorado. He has been writing an economic update every week for the past 31 years and is the only economist in the world to have received the designation of CSP, or Certified Speaking Professional. Republished with permission from the Tea Leaf by Jeff Thredgold, whose site address is www.thredgold.com/html/leaf.html.
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