This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Economy to Continue Painfully Slow Growth

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (TheStreet) -- The economy is expected to register 3% growth or better for the fourth quarter, thanks to stronger consumer spending. However, the growth in consumption has been outpacing income, debt is piling up again, and some pullback in consumer activity is likely the first half of 2012.

Unlike the boom years of the last decade, households will not be able to refinance credit card debt and auto loans by further mortgaging homes, and consumers simply must slow down during the first half of 2012.

The economy will register growth at or below 2% the first half of 2012, perhaps picking up the second half of the year to 2.2% to 2.5%.

Here are my forecasts.

Bright spots include continuing strength in autos and a modest recovery in residential construction -- already under way -- but risks that existing home prices may fall further and the difficulties of reselling homes in most markets are pushing young families into renting.

Follow TheStreet on Twitter and become a fan on Facebook.

In addition, the greater concentration of deposits among large Wall Street banks -- thanks to industry consolidation prompted by Dodd-Frank -- makes financing more easily available for multiunit developments, as compared to single units, than in the past.

Consequently, more young families will be renting than during the last decade, and more of the recovery in residential construction will be concentrated in that sector than in past recoveries.

Industrial production and manufacturing will continue to expand but jobs creation in those sectors continues to be slow. Simply, the failure to address currency issues with China and others, and rising protectionism in China, Brazil and others in their orbits make manufacturing using significant amounts of labor tough in the U.S. Most of the gains will be in resource related sectors -- e.g., oil and gas equipment -- and high-tech and other durables, using minimal production labor.

Risks to Recovery

Most risks are to the downside, and adverse events in any one of four areas could instigate a recession.

  1. 1. China faces real challenges -- falling property, questionable accounting standards and banks stuffed with bad loans. Once again, China is turning to protectionism -- increasing tariffs and further suppressing the value of its currency to keep out U.S. exports. The administration has shown little inclination to confront these aggressive practices with substantive U.S. responses and Congress cannot act in a timely fashion without presidential leadership. Moreover, House Speaker Boehner appears to share President Obama's predispositions on trade issues with China making unlikely any action until after the fall elections, if then.
  2. U.S. banks remain troubled and are not lending money to small and medium-sized businesses. After buying up smaller banks that can't cope with new, tougher regulations, Wall Street banks control more than 60% of deposits nationally, are driving down CD rates (essentially exploiting monopoly positions as they acquire banks in regional markets), and are not making enough loans to Main Street businesses.

    Instead, Wall Street banks are using deposits to engage in other, non-traditional-banking activities that don't move the economy forward. Gaming at the Wall Street casino tables pays the big bonuses, while the old-fashioned business of making loans from government-insured deposits does not.

  3. Oil prices are spiking, and the Obama administration continues to stall, slow and stop U.S. oil and gas projects at every turn. That affects the economy much like a negative stimulus package -- petroleum projects use the same kinds of stuff (steel, cement, construction workers) as building roads and buildings.
  4. Europe is in deep trouble. The crisis has not passed and if the right steps are not taken, European banks, which are burdened with a lot of Italian, Greek, Spanish and other government debt, will start failing. U.S. banks are vulnerable to a contagion.

    European economic powers -- in particular, Germany and France -- appear wholly disinclined toward forging a genuine fiscal union that could engage in continental taxation to finance essential functions of government. Limits on national deficits are no substitute for common taxation and unified spending policies. Instead such austerity almost guarantees a prolonged European recession and price deflation -- a process that could take until the end of the decade to complete.

Readers Also Like:


Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,122.01 +15.31 0.09%
S&P 500 2,000.12 +0.10 0.00%
NASDAQ 4,569.6210 -1.0160 -0.02%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs