Tea Leaf: Economy can be looked at better or worse

For Better …

It's nice for a change to be able to talk about an American economy that is, for the moment, getting stronger. After growing at a truly pathetic real (inflation adjusted) annual rate of less than 0.9% during 2011's first six months, the economy grew at a revised 2.0% real annual rate during the third quarter.

Ironically, a downward revision for the third quarter from the initially reported 2.5% growth pace merely "shifted" some of that growth into the fourth quarter, where most forecasters see growth near a 3.0% real annual rate. That may be the peak in growth for awhile. Most forecasters see growth slowing to a 1.5%-2.5% real annual rate during 2012, with stronger growth in the year's second half than in the first.

Stronger data has been reported in recent weeks in overall manufacturing and auto sales. Even the beleaguered housing sector has seen stronger performance, although from extremely depressed levels.

Yes, the sharp decline in the nation's unemployment rate from 9.0% in October to 8.6% in November added to the modest level of exhilaration now felt. And yes, the unemployment rate decline had more to do with 315,000 people leaving the labor force than job gains. Still, as noted in the Tea Leaf issue two weeks ago, job gains reported in the household survey have been reasonably impressive.

Reasons?

Perhaps some of the stronger economic performance is tied to the fact that even as Europe flounders, its impact on the U.S. to date has been limited.

Perhaps it is the "perverse satisfaction" we Americans feel that the more immediate global financial challenges are now being faced on the other side of the pond, versus here. We already carry enough anxiety for being the primary culprit of the 2008 global financial meltdown.

Perhaps it is the fact that what many would describe as the most-liberal, big-government-loving administration in our history could well be dismantled beginning with the November 2012 elections. It is a toss-up at this point.

Perhaps it is the fact that the numbers clearly favor the Republicans to hold onto the House of Representative AND retake control of the Senate. Democrats, who currently have a 53 to 47 edge in the Senate (including two independents who caucus with the Democrats), have 23 seats to defend (including the independents), while Republicans have only 10 seats at risk. Given the anti-incumbent rhetoric widely held in the country, change in control could easily occur.

Perhaps it is the fact that while budget deficits of the past three years are truly scary at roughly $1,300,000,000,000 each year, the political and public mood provides little to no room for even larger deficits. Political discussion has now shifted primarily to how to rein in monstrous and damaging deficits in coming years, versus what new government programs should be enacted. That is the first step.

Perhaps it is the pent-up demand of the past few years where people drove cars longer, put off vacations, and a myriad of other things fearing the worst relative to the economy and their jobs.

Perhaps it is the fact that even as Rome (and much of Europe) burns, the American stock market has held up reasonably well, with relative optimism being the prevalent view for 2012.

Perhaps it's the fact that $3.50-$4.00 a gallon gasoline has not had the psychological impact it had the first time we reached those levels.

Perhaps it's even the fact that professional sports got its act together. An exciting World Series in baseball captured the interest of millions. Following a lengthy strike/lockout/"whatever" in the NFL, the owners and players made a deal to have a full and exciting season. Even the NBA finally saw the wisdom in actually playing the game starting later this month with a 66-game season, versus the regular 82-game grind.