Economic Outlook for 2012 -- Opinion

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 grew at 3% annual rate in the fourth quarter, but first-half growth is likely to disappoint, renewing upward pressures on unemployment.

Fourth quarter growth was powered by stronger consumer spending -- especially on autos, substantial additions to business inventories and stronger multifamily home construction.

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Through most of 2011 gains in consumer spending outpaced incomes; however, from November through January, real consumer spending was flat. In recent months, higher gas prices absorbed significant additions to nominal income created by a somewhat stronger labor market.
President Obama touring the pipe yard for the Keystone XL pipeline project Thursday.

Unlike the boom years of the last decade, households will not be able to refinance credit card debt by further mortgaging homes, and consumers simply had to slow down. The notable exception continues to be autos, where an aging fleet helps increase sales, and higher education -- much of the recent surge in consumer credit has not been on credit cards but loans to finance autos and higher education.

Forecasts

The economy will register growth at or below 2% the first half of 2012, perhaps picking up the second half of the year to about 2.5%, and tail back to about 2% in 2013.

Bright spots include continuing strength in autos and a modest recovery in residential construction -- already under way; however, more young families are being pushed into renting as a result of worries existing home prices may fall further; difficulties reselling homes could also limit mobility in a still tough labor market.

The costs imposed on regional banks by tighter regulations for residential mortgages, and the greater concentration of deposits among large Wall Street banks -- thanks to industry consolidation prompted by Dodd-Frank -- make financing more easily available for multiunit developments. Much of the recovery in residential construction has been concentrated in apartment buildings.

Recent industry and government reports indicate some recovery in home prices from 2011; however, those are from quite depressed levels. Overall, housing values are not likely to improve dramatically, and may fall further on a seasonally adjusted basis this spring and fall, owing to slower GDP and employment growth.

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