2012 Crystal Ball: More of the Same?

If you haven’t noticed the Great Recession is over, you have a lot of company these days. Although the country’s latest economic downturn officially ended in June 2009, according to the National Bureau of Economic Research, the last two-plus years of “expansion” have offered few tangible examples for small business owners.

During the past 24 months, the unemployment rate has hovered around 9 percent, dipping into the 8-percent range only during the last three months of 2011. The stock market rallied early on in the expansion, based on the overseas profits of large public firms, but markets were flat in 2011. 

Sentiment among small business owners also remained historically low. The Index of Small Business Optimism stood at 94.1 in January 2011 and ended the year at 93.9, after dipping as low as 88.1 in August. The best that can be said is 2011 ended on an upbeat note, with four straight months of improvement. 

On the upside, data shows that owners and managers last year invested more in their businesses after several years of holding off. In 2011, actual capital outlays increased from 51 percent to 56 percent, after languishing for several years at or below 50 percent. But this growth in capital spending is still too weak to pull the economy out of the doldrums.

The economy in 2012 is shaping up to be another mixed bag. Here are my predictions for the rest of the year:

•    Uncertainty about the political process will remain high, as Pres. Obama pursues his objectives by circumventing a Congress that will not bend to his agenda. With Congress stalled, regulation by unelected officials will replace the legislative process to move the administration’s agenda forward. That means little will be done to deal with the runaway spending and deficit, which only compounds the uncertainty small business owners already face.

•    Look for recent population growth to provide a base for consumer spending  that will help move the economy forward. Housing will improve modestly, but there are still 1 million to 2 million surplus houses to dispose of, and this will keep the lid on construction. 

•    Interest rates again will stay low in 2012, as policymakers will be able to manage inflation during at least the first half of the year. After that, it’s anyone’s guess. Energy prices also are difficult to predict, with geopolitical uncertainties around the globe complicating supply and demand.

•    It’s a virtual certainty that the U.S. unemployment rate will fall even further. This is due in equal parts to an uptick in hiring and unemployed workers deciding to give up and drop out of the work force.

It’s very likely that 2012’s economy will be better than the year before—not by much—which will ensure our current recovery remains the softest since NFIB began collecting data in 1973.
 

Dr. Bill Dunkelberg, a nationally known authority on small business and entrepreneurship, has served as NFIB’s chief economist since 1971.

Watch NFIB’s economic video series featuring Bill Dunkelberg. New episodes are posted each Wednesday, and all videos are archived at www.NFIB.com/bottomline.