U.S. Economy: Why 2012 Will Probably be the Same as 2011

While not as bad as the years prior, 2011 was a difficult year for the U.S. Some say 2012 will be better, but I beg to disagree. Even though some economists have actually upgraded their forecasts, especially with regard to the labor market, I believe there are a couple of long-term factors that will continue to put a drag on economic recovery.

You may think that I enjoy being “gloom and doom,” but really, my aim is just to educate and present the other side of the coin. As much as possible, I present facts as-is and without any bias. Without further ado, here are my 4 reasons why 2012 won’t be any different than 2011.

1. Housing Industry Woes

Don’t expect the housing sector to fare any better this year. There are still a lot of excess inventory that needs to be disposed of, which means home sales and construction will probably remain weak. It should take another year or two for the industry to start gaining traction again.

The depressed prices of homes will also encourage families who normally “trade in” their houses for better ones to stay put instead, which will weigh heavily on housing activity.

2. Aging Population

During the financial meltdown, birth rates in the U.S. tanked significantly. In fact, during 2008 to 2010, birth rates experienced the largest decline as more than a million births in the U.S. were postponed or forgone. It makes perfect sense – people to choose to NOT have kids when the economy isn’t doing well.

The largest generation, the post-World War II Baby Boomers, are starting to retire from their jobs, which means consumer spending will take a hit. Adults normally reduce spending once they retire.

3. Export Sector Standstill

While U.S. corporations boast high quality products (generally speaking, of course), so does other emerging nations. The difference is that these emerging nations offer their products at much cheaper prices, which makes their exports extremely more competitive. This especially holds true for low-end goods and services.

In addition, global demand still isn’t as strong as it was pre-recession. There is an oversupply of products, and the U.S. will have a hard time capturing a piece of that pie for the reasons I mentioned above.

4. U.S. Budget Deficit

The costs associated with the bank bailouts, stimulus packages, and other financial system measures will need to be paid for this year. Moreover, health care reform will put downward pressure on spending growth in medical care. This means that the U.S. will have to make some spending cuts and tax hikes again.

To conclude, it’s going to take more than a one or two years to bring the U.S. back on its feet. The road to a truly healthy economy will be a slow one, but be assured that given enough time, things will go back to normal. For now, we just have to bite the bullet and take each tackle each problem one at a time.