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Economy 2012: Recovery Gains Traction

 

By Richard Davies, December 27, 2012

 

For most of 2012 the US economy was about halfway there: halfway between recession and robust growth.

 

"I'm optimistic that the worst days are behind us," economist Diane Swonk told ABC News in February. "The problem is I don't think the best days are ahead of us yet."

 

While more vacancies opened up during the year, the US unemployment rate remained stubbornly high - close to 8 percent. Nearly 5 million Americans have been out of work for at least six months, and many of them saw their jobless benefits run out.

 

In 2012 American motorists paid the highest ever prices for gasoline. "They are getting pretty ridiculous," said John Jezenski in Los Angeles as he paid over $5 a gallon to fill up. "It seems to be getting higher and higher so it's pretty crazy." Gas prices have fallen well off their highs for the year, to an average of $3.57 this week.

 

But high demand for gas is good news for the energy industry. The boom in oil and natural gas production brought more jobs to several states, especially North Dakota, which boasts the lowest unemployment rate in the country.

 

The year's big comeback stories came for the housing and auto industries. Edmunds.com forecasts an annual 14 percent gain for auto sales compared with 2011.

 

In September Stan Humphries of the real estate firm Zillow.com told ABC News Radio "the housing market has really turned a corner." Since then signs of improvement have solidified.

 

National home prices rose more than 5 percent this year through October. Housing starts and sales are their highest in five years while foreclosures began to drop. The overhang of unsold properties fell dramatically.

 

The homes and autos revival was largely fueled by very cheap loans. In September, the Federal Reserve announced it would keep interest rates near zero until at least 2015.

 

"The idea is to quicken the recovery - to help the economy begin to grow quickly enough to generate new jobs and reduce the unemployment rate," said Fed Chairman Ben Bernanke.

 

The bottom line for most businesses improved in 2012. That helped the stock market - and 401(k) funds - gain ground. With less than a week to go before year's end, the Standard & Poor's 500, used as a benchmark for many mutual funds, rose 12 percent.

 

"The economy right now is pretty strong," says Brian Hamilton, CEO of the financial information firm Sageworks, which tracks privately held businesses. "Companies don't owe as much money, and things are just doing better. Profit per employee, sales per employee - those are strong."

 

But Hamilton says the jobs market is not doing as well as it should, and he blames partisan gridlock.

 

"The political environment in Washington is poisonous." And that means businesses find it more difficult than normal to plan for the future. "People don't know what public policy is going to be. They don't know what tax policy is going to be."

 

Other experts agree. "CEO's that I talk to are sitting on the sidelines on historically the largest piles of cash they've ever had, waiting to deploy it," says equities Managing Director Susan Schmidt at Mesirow Financial in Chicago.

 

Looking ahead to the new year, the economy may depend on much more than a temporary fix for taxes rates and spending.

 

"When Washington can come to a compromise or reach an agreement," says Schmidt, "I think the markets will respond to that very positively… Kicking the can down the road doesn't help."

 

For the full story visit ABC News - Economy 2012: Recovery Gains Traction.