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Economic Research

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Volume 12, Number 4
Fourth Quarter 2010


Good News, Bad News in 2010 Color Outlook for 2011

The Great Recession officially ended in June 2009, but the continued weakness of some economic fundamentals is holding back more robust growth, according to an article in the fourth-quarter issue of EconSouth. The article was written by Mike Hammill, an economic policy analysis specialist, with John Robertson, a vice president, and Dave Altig, research director, all with the Atlanta Fed's research department.

While the U.S. economy has been expanding for almost a year and a half, and a number of key fundamentals such as business investment and consumer spending have picked up, the recovery "has not been strong enough to meaningfully reduce the unemployment rate," said the authors.

Lingering joblessness, along with weak income growth, lower housing wealth, and tight credit, are acting as headwinds to the economic recovery. The U.S. economy is not all doom and gloom, however. Business investment, a particularly bright spot, grew at a 20 percent annual rate during the first three quarters of the year. The authors explained that "this theme of improvement in some areas and ongoing weakness in others illustrates the unevenness of the recovery and heightened uncertainty about future economic prospects."

However, the optimism of the early part of the year and the summer's pessimism were likely both overreactions to the vagaries of short-term data, the authors emphasized. Bumpy growth for an economy coming out of a recession is not unusual. For example, GDP jumped by 3.5 percent in the first quarter after the 2001 recession but three quarters later had slowed to just 0.1 percent. Likewise in the current recovery, this pattern of bumpy growth has held.

For the 2011 outlook, risks lurk on both the upside and downside, but there are reasons for optimism. Businesses have considerably more liquidity and significant capacity to deploy capital to new projects. Some of the uncertainties that have vexed private decision makers, such as the course of near-term tax policy, may finally be abating.

Rising confidence among both businesses and households will be a critical factor affecting how quickly the process of economic recovery accelerates. Recent surprises in the economic indicators have been predominantly to the upside, which is a very good sign. If such positive surprises persist, and confidence grows, it could be that current estimates for only slight improvement in 2011 have been too modest.

To learn more about the national economy's performance in 2010 and the outlook for 2011, see "Good News, Bad News in 2010 Color Outlook for 2011," PDF document featured in the fourth-quarter issue of EconSouth, now available in print and online.