u.s. economy 2012

Five Reasons U.S. Economy Bears Have Turned Bullish

Bear bull

Recent data has silenced some of the loudest U.S. economy bears.

According to a new Bloomberg survey of 69 economists, gross domestic product likely grew at a 3% annualized clip in Q1. That compares with the 2% pace forecast in March and 1.6% in December.

Morgan Stanley (NYSE: MS) Chief U.S. Economist Vincent Reinhart went from an estimate of 0.8% in December to 3%. Brain Kasman of JPMorgan & Chase & Co. (NYSE: JPM) upped his projection from 1% to 3.3%.

"We are surprised that there wasn't a bigger and more immediate hit to spending" by consumers, Reinhart told Bloomberg. "There is an underlying momentum in spending, which means that sequestration and the tax increase will only lead to a monetary pause."

Kasman shared that sentiment when he said on an April 5 conference call, "What happened at the beginning of the year was a genuine surprise in terms of how well the economy held up."

Expansion is expected to slow to 1.5% in the current quarter before picking up to an average 2.4% over the second half of 2013.

Here are five reasons these economists have raised their growth targets.

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The Great American Rebound Has Just Begun

The American "manufacturing renaissance" is not some fantasy - it is actually happening.
Jobs that had been outsourced to China and elsewhere really are returning to the United States. Believe it or not, this "reshoring" already has reversed the long, steady decline of manufacturing jobs in the U.S. In fact, since 2010, America has added 500,000 manufacturing jobs, an increase of 4.3%.
The economic and investment implications of this reversal are considerable, to say the least.
Here are three reasons the great American rebound is happening... and how to profit from it today.

U.S. Economy: "Recovery" Doesn't Fool Struggling Americans

Old Worn Wallet Being Squeezed in a C Clamp

The government's numbers - primarily the monthly data on unemployment and inflation - tell the story of a slow but gradual recovery by the U.S. economy.

But the experience of millions of Americans tells a far different story.

According to a new national survey conducted by the John J. Heldrich Center for Workforce Development at Rutgers University, many Americans continue to suffer from the impact of the Great Recession.

What's more, more than half of those surveyed believe the U.S. economy will not fully recover for another six years, and nearly one-third said the U.S. economy will never fully recover.

"Millions of households were affected to some extent by the layoffs that occurred four years ago," Mark Szeltner, the lead researcher for the Rutgers survey, told The Daily Ticker.

The Rutgers survey backs up what some other surveys have said.

Last August, in a Pew Research survey of middle-class Americans, 42% said they were worse off than they were in 2008.

A Rasmussen survey taken earlier this month showed that only 39% believed the U.S. economy would be stronger in five years - the first time, Rasmussen said, that figure had ever dipped below 40%.

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The Frightening Financial Crisis Facing Young Americans

Baby colorful small

Young Americans are falling deeper and deeper into a financial crisis that will be nearly impossible to escape from in their lifetimes.

Unfortunately, the problems start at a very young age. Not only do a record number of school-age children live in poverty, but the number of homeless children in the public school system has reached an all-time high.

Even young adults who are able to attend college have trouble supporting themselves after graduation. Students take on mountains of debt to pay for school, but all too many of them can't find a decent job that covers their bills and their loans.

And those who do find jobs will likely be working for many more years than previous generations. That's because Social Security is expected to run out well before today's youngest workers retire. Those who have failed to save enough will end up working into their 60s, 70s and 80s.

"We don't know how the story ends, but we know how the story is beginning," Paul Taylor, executive vice president of the Pew Research Center, told CNN. "At the beginning, today's young people are not doing better than yesterday's young adults."

Here are 14 startling statistics painting a bleak financial picture for many young Americans.

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What the December U.S. Jobs Report Tells Us About 2013

The December U.S. jobs report released Friday showed the country's unemployment rate failed to improve in the last month of 2012, with the economy adding only 155,000 jobs.

The unemployment rate, originally reported as 7.7% for November, was revised upward for that month to 7.8%, and stayed the same for December.

The figure was roughly in line with expectations. Estimates for the number of jobs created in December ranged between 140,000 and 160,000.

Non-farm payroll hiring in December was most robust in health care, which created 45,000 jobs. Manufacturing, construction and hospitality also logged strong gains.

Oddly, employment dipped in retail during the holiday-sales month, which is usually the most active time for the sector.

The government also shed jobs, dropping 13,000.

After eliminating some 653,000 jobs from 2008 to 2011, state and local governments kept headcount mostly even in 2012. The decline in December could be attributed to the economic uncertainty hanging over Capitol Hill.

The Pentagon has warned that workers may have to be furloughed if the debate over raising the U.S. debt ceiling, set to be taken up in a few weeks, is dragged out past next month.

Also weighing on government hiring is the pack of problems that will challenge growth, like rising worker pension costs, steep spending cuts and reduced federal funding that will likely kick in during 2013.

As Moody's chief economists told USA Today, "The fiscal headwinds will be blowing hard in 2013."

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U.S. Jobs Report: What to Expect from December

The ADP employment report out today (Thursday) offered a glimpse of what to expect Friday in the December U.S. jobs report from the Labor Department.

The private sector created 215,000 new jobs in December, much more than the 133,000 jobs economists had expected, and a sharp increase from the previous month, according to the report.

The biggest gains were in the category of trade/transportation/utilities, which grew by 53,000.

Gains in construction hiring were also robust, with 39,000 positions added in December, the U.S. jobs report said.

The healthy showing in this struggling sector was attributed mostly to relief work after Hurricane Sandy. But the slow, yet steady recovery in the housing market also deserves some of the credit.

Medium-sized businesses led job creation, adding 102,000 new jobs. Large businesses followed with 87,000 new jobs.

Bucking the trend was manufacturing; the sector shed 11,000 positions while service providers increased headcount by 187,000, according to data from Moody's Analytics.

The strong showing was a surprise, given months of cautionary words from a bevy of analysts and the Congressional Budget Office.

The analysts and the CBO had warned the fiscal cliff saga would lead to massive job losses and cutbacks in business expansion, hiring and investment.

"The most surprising thing is that despite all the brinkmanship over the fiscal cliff drama and the debate about that, businesses didn't change their hiring plans. They seemed to slow up their investment spending but not on their hiring, so that's very, very encouraging," Mark Zandi, Moody's Analytics chief economist, told CNBC.

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Why Inflation is the Economy's "Iceberg" in 2013

Even though Ben Bernanke's Fed has kept interest rates close to zero, inflation hasn't been a big problem since the 2008 financial crisis.

Despite what many observers have expected inflation has remained quite tame.

However in 2013, that may be about to change. One factor that might cause a surge in inflation is the fiscal cliff.

That's because Bernanke is already buying $1 trillion of Treasury and housing agency bonds each year ($85 billion per month) against a budget deficit that is about the same level.

That means the inflow of funds to the economy from the Fed and the outflow of money to fund the government's spending are about balanced.

However, if we go over the fiscal cliff the Federal deficit immediately falls to about $300 billion per annum. At that point, Bernanke would be injecting an extra $700 billion a year into the economy - which would have a corresponding inflationary effect.

The Case for Higher Inflation

But that's only part of the inflationary story.

Central banks around the world are also expanding their money supply. China has become more expansive, the European Central Bank is buying bonds of the continent's dodgier governments and Britain like the United States is monetizing nearly all the debt it creates to fund its budget deficit.

The big change in 2013 is now in Japan, where the new Abe government has told the Bank of Japan it wants much more buying of government bonds, to push the inflation rate up to 2%.

And just as Bernanke's money creation increases inflation internationally, Japan's new monetary push creation will likely increase inflation here in the United States.

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How a Port Strike Would Slam the U.S. Economy in 2013

Jobs strike In the final hours to reach a deal, progress was made today (Friday) in averting a port strike that could cripple most major ports along the U.S. East Coast and Gulf Coast.

A federal mediator Friday announced a temporary solution: The strike, scheduled to take effect Dec. 30, will be delayed until Jan. 28 unless dock workers and management agree on payment issues.

"While some significant issues remain in contention, I am cautiously optimistic that they can be resolved in the upcoming 30-day extension period," George Cohen, director of the Federal Mediation and Conciliation Service, said in a statement.

But, if negotiators representing longshoremen on one side and shipping companies and port terminal operators on the other can't come to an agreement by Jan. 28, 2013, a port strike could cripple the U.S. economy, which may already be hobbled by falling off of the fiscal cliff.

In today's just-in-time, minimal inventory world, a dock strike would mean that stores would quickly run out of certain non-perishable imported products including clothing, shoes and electronics.

For example, Wal-Mart Stores Inc. (NYSE: WMT), which relies heavily on goods imported from China, could fail to receive merchandise on time, particularly on the East Coast. And auto manufacturers, especially those such as BMW that assemble cars in the U.S. from imported kits, could quickly find themselves running out of parts.

Given the uncertainty surrounding the fiscal cliff and how it has weighed on economic activity, "The last thing the nation needs right now is a strike that would shut down the East Coast and Gulf Coast ports," Jonathan Gold, vice president for supply chain policy at the National Retail Federation, told The New York Times. "This will have a huge ripple effect throughout the economy."

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U.S. Economy 2013 to Get Boost from Offshored Jobs Coming Home

The U.S. economy in 2013 should get a badly needed push from the acceleration of an improbable trend - the return of offshored manufacturing jobs to America.

Often referred to as reshoring, the trend started to gain traction this year, but is attracting more and more interest from manufacturers who just a decade ago couldn't move production to China and other foreign countries fast enough.

Companies rushed to send work abroad to take advantage of cheaper labor costs as well as to have factories closer to customers in rapidly expanding Asian economies.

Some companies did improve their bottom line, but at a great cost to the U.S. economy: America lost nearly 6 million manufacturing jobs between 2000 and 2010.

Yet calculations that favored the offshoring of manufacturing just a few years ago no longer add up. Some argue they never did, as offshoring turned out to have many hidden, unforeseen costs for many companies.

"There was a herd mentality to the offshoring," John Shook, a manufacturing expert and the CEO of the Lean Enterprise Institute, told The Atlantic. "But it was also the inability to see the total costs - the engineers in the U.S. and factory managers in China who can't talk to each other; the management hours and money flying to Asia to find out why the quality they wanted wasn't being delivered. The cost of all that is huge."

Now jobs once thought lost forever are starting to return to the U.S.

According to a Boston Consulting Group survey taken in February, 37% of U.S. companies with sales of $1 billion or more are either planning on reshoring some production or actively considering it.

Why Companies are Reshoring

Reshoring already has reversed the long, steady decline of manufacturing jobs in the U.S. Since 2010 America has added 500,000 manufacturing jobs, an increase of 4.3%.

With the disadvantages to manufacturing overseas growing each year, it's no wonder reshoring is becoming popular:

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Another Sign the U.S. Economy is Headed Down the Same Road as Japan

Thirty years of negative stock market returns and multiple "lost decades" are failures the U.S. economy does not want to experience. Yet, unprecedented amounts of quantitative easing and skyrocketing debt in the United States are starting to cause concern that America could follow that path – the same one traveled by Japan. Money Morning Chief […]

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