The 2012 Economy, and What Lies Ahead for 2013

In a presidential-election year, it can be tough to separate rhetoric from reality. But now that the voting booths are closed and the rhetoric has quieted down, it may be easier to sort out what really happened in 2012, and make predictions for 2013.

In a presidential-election year, it can be tough to separate rhetoric from reality. Leading up to last year’s election, Republicans painted a bleak picture of America’s economic recovery, contending that jobs and the overall economy were not growing fast enough. Meanwhile, Democrats latched on to any positive economic news, and likely benefited from a slowly decreasing unemployment rate and a rebounding manufacturing industry. But now that the voting booths are closed and the rhetoric has quieted down, it may be easier to sort out what really happened in 2012, and make predictions for 2013.

Brian Beaulieu, chief executive officer of ITR EconomicsTM and chief economist for Vistage International

Brian Beaulieu, chief executive officer of ITR EconomicsTM and chief economist for Vistage International, describes economic growth in 2012 as “modest,” as companies worldwide continued to sit on large amounts of cash—rather than investing—due to the uncertainty of the global economy. Beaulieu also says, however, that those who were willing to take risks in 2012 made out well.

“It took guts to make money in 2012,” said Beaulieu. “But entrepreneurs found ways to make better profits than folks who were simply in the mode of conserving.”

Foreign investment, Beaulieu says, started strong and remained so throughout 2012.

“Over the course of the year, we certainly saw a lot of foreign money coming in for manufacturing purposes,” he said. “Additionally, foreign investors simply snapped up some of the commercial and residential real estate that has been available at bargain-basement prices. We expect both of these trends to continue if not all, but most of 2013.”

But what about Europe and its seemingly unending recession? According to Beaulieu, European countries are beginning to make meaningful changes that will lessen the drag of their economic woes on the world economy.“

The ECB (European Central Bank) having control over the banking system in the Eurozone is excellent—it’s clearly having an influence on the non-Eurozone banks as well, which is good,” contends Beaulieu. “Spain is getting with the program. Greece is negotiating successfully with the ECB in terms of their austerity measures. Portugal is biting the bullet, despite the fact that it means ongoing recession for them. So, the Europeans are toughening up and doing what they have to do, all of which means they won’t go cascading downward, but it certainly doesn’t put them in a position to experience a recovery.”

As far as the overall U.S. economy is concerned, Beaulieu believes 2013 will be slightly better than 2012.

“Consumers are out there spending their little hearts out,” explained Beaulieu. “Despite all of the consternation about a ‘fiscal cliff,’ people seemed to be either a) oblivious to it or, b) convinced that it was going to go away, or c) some combination of the above. They are just spending money.”

“Retail sales from Thanksgiving through Christmas came in above year-earlier levels,” he continued. “We saw the big-box stores hiring more people seasonally this year than they did last year. Employment continues to go up, housing sales are doing fantastic, all of which says the consumer is doing the heavy lifting for this business cycle right now, and the heavy lifting will go even higher.”

The Consumer Confidence Index—published by The Conference Board by Nielsen, a global provider of consumer information and analytics—reached a four-and-a-half-year high in November of 2012, a good sign that more spending and new investments may be just around the corner. And when consumer confidence increases, so too does the demand for products supplied by U.S. manufacturers.

“Consumer spending is going to remain fairly strong in the first half of the year,” predicts Beaulieu. “We see interest rates being kept low by the Federal Reserve, rising retail sales, and employment gains continuing in 2013. It’s a pretty strong winning combination… a good trifecta.”

January 21, 2013

Some opinions expressed in this article may be those of a contributing author and not necessarily Gray.

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