The Year 2011 Better, Stronger, and Healthier for the World’s Largest Economy |
Another year had passed by for the world’s largest economy, where the level of expectations was high, yet the economy failed to meet those expectations, as the worst recession since the Great Depression proved to be far worse than anyone had expected, nevertheless, the economy continued to recover throughout 2010, although the recovery was rather poor and slow, but 2011 seems to be a far better year for the United States economy.
Housing to Continue Stabilizing
The housing market in the United States failed to recover sufficiently in 2010, where elevated unemployment, tightened credit conditions, and record foreclosures continued to weigh down heavily on housing market activities, nevertheless, the housing market continued to stabilize throughout 2010, where activity continued to fluctuate heavily.
However, this upcoming year seems to be much better for the housing market, where although we still expect more challenges to arise, but we really believe that conditions will improve drastically in 2011 compared to 2010.
The Federal Reserve Bank decided in November 2010 to undertake a second round of quantitative easing in so called “QE2”, while this decision was highly criticized by Hawks in financial markets and republican policy makers, yet we actually believe it was vital for the economy, since the aim of QE2 was to make sure that long term interest rates remain low in order to help stimulate economic activities.
However, one could argue that QE2 will bring inflation, especially since the Fed continue to undertake an aggressive easing monetary policy, and given that the economy can start to grow over a strong pace, inflation risks are seen to soar towards the sky, however, market Hawks seem to have disregard one important fact, and that is elevated unemployment, which is still standing near its highest level in more than 25 years.
Accordingly, we should consider QE2 as a positive policy that would probably help in restoring stability in the housing market, where the overall improvement in economic conditions, which was witnessed towards the end of 2010, accompanied by a period of low interest rates and an improvement in the labor market, would help in stimulating housing market activities in 2011.
The housing market will probably continue to stabilize during the first half of 2011, while a noticeable improvement should be witnessed during the second half of 2011, although we can’t really be sure, but based on expectations that unemployment is going to drop next year, in addition to rising consumer confidence, we should expect housing market activities to grow stronger in 2011.
Manufacturing to Continue Expansion
The manufacturing sector was one of the first sectors to emerge from the recession, where the manufacturing sector suffered its worst slump since the early 1980s, but ever since August 2009 the manufacturing sector started to show some expansion in activity, although the expansion was not sustained, since we witnessed some easing in manufacturing activities throughout 2010.
One major factor that prevented the manufacturing sector from recovering over a sustained pace was indeed weak demand levels in 2010, where global economies were still feeling the heat from the worst recession since WWII, and except for few emerging economies such as China, most were still under huge pressure and accordingly, demand levels on a global scale were rather weak in 2010.
But we expect the manufacturing sector to be able to expand over a stronger pace in 2011, although we still think the expansion won’t pick up any strong momentum before the second half of 2011, as given the course of the recovery so far, we believe that the first half of 2011 will still show weak overall economic activities, since the weak recovery is expected to prevail at least through the first two quarters if not the entire year.
Global economies are on course to continue the recovery in 2011, and that should help manufacturing activities in the United States, although some major economies are still facing some troubles, yet emerging economies rather than major economies are expected to support global growth in 2011, which means that global demand will rise in 2011 compared to 2010, yet will demand levels recover sufficiently to fuel economic growth all around the globe? Highly unlikely but still not an impossibility.
Services Road to Stabilization
The services sector was still following the lead in 2010, but overall activities in the services sector continued to expand throughout 2010 although the pace of expansion was not sustained amid the challenges that continued to weigh down on overall economic activities.
The services sector accordingly continued its bumpy recovery in 2010, while we expect a similar scenario for the services sector in 2011 to the one that the manufacturing sector faced during 2010, where we expect the services sector to continue stabilizing throughout 2011, as we should also witness a gradual improvement in services activities, but we don’t see strong growth levels in 2011, since the labor sector will have a major role in the recovery of services activities.
Accordingly, we still think that the services sector will be rather weak especially in the first half of 2011, although we expect the services sector to continue its expansion, however, this expansion won’t be enough to fuel an overall improvement in economic growth, since we still expect the economy to underachieve its long term growth potentials in 2011.
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