As 2011 drew to a close, a spate of unexpectedly good economic data that lifted the stock markets was clouded by the standoff over the payroll cuts causing uncertainty for millions of Americans. In the end however, sanity prevailed and the house G.O.P. leaders agreed to extend payroll tax cuts and unemployment benefits for millions of Americans.

 

Holiday Cheers

Gross Domestic Product (GDP), the broadest measure of economic performance, has now grown for nine consecutive quarters, albeit at a slow pace. The jobless rate was down in 43 states, indicating nationwide recovery. The national unemployment rate inched down to 8.6% as reported by the Bureau of Labor Statistics (BLS) in November 2011. Initial claims for jobless benefits, often an early indicator of where the labor market is headed, have dropped to their lowest level since May 2008. Other reports such as business confidence, residential construction, and corporate profits, all have beaten analysts’ expectations in recent weeks.

U.S. consumer sentiment is also improving. The University of Michigan’s consumer Sentiment Index increased to 69.9 in December, its fourth consecutive month of increase.   Consumer confidence in December, 2011, rose to the highest level in five months as an improving job market and falling gasoline prices buoyed holiday shoppers, boosting retail sales for six straight months.

The index of U.S. leading economic indicators (LEI) climbed more than forecasted in November, a sign that the American economy will keep growing in early 2012 and may even pick up pace in the spring.

Jingle All the Way?

If these were normal times, our economy would be on track for a steady, albeit slow growth trajectory in 2012. But these are not normal times. This is an election year, with both parties digging deeper into their opposing positions. Expect more grand-standing, political maneuvering, uncertainties, and glum news in Washington that almost shut down the federal government and nearly triggered a federal default in 2011. And then there is the dark cloud of the European sovereign debt and a banking crisis that threatens to derail the already fragile world economy.

So, is the Glass Half Full or Half Empty..?

Now, I am beginning to sound more and more like an economist who cannot make up his mind on the state of the economy. Is the glass half full or half empty? Will the U.S. economy grow or stagnate due to political stalemate in an election year and the European financial crisis?

And the Final Answer is…

I am an eternal optimist. Having cited many sources and opinions of highly respected economists above, I am willing to bet and say that yes, we have turned the corner. The sun is shining on the American economy.

My reasons for this optimism are not statistical in nature, rather, they are intuitive.

Despite all the political maneuvering, grand-standing and bickering in Washington, the government did not shut down, the debt ceiling was raised, and the tax break was extended. There is an immense pressure on politicians not to play with economic fire or risk getting burned.

The European Union sovereign debt and financial crisis, though still looming large on world psyche, is not likely to catch fire as several steps were taken recently to smother if not extinguish the fire completely.

On December 9, members of the euro zone agreed to sign an intergovernmental treaty that would require them to enforce more strict fiscal and financial policies in their future budgets. On December 21, European central bankers pumped nearly $640 billion into the Continent’s banking system. The move raised hopes that the money could alleviate the region’s credit squeeze.

In short, the sun is shining, at least for now, and is expected to continue to shine into the foreseeable future, but bring your umbrella just in case.