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Based on the most recent data from federal sources (graphed below), we can expect a reduction in the federal budget deficit beginning this year and extending into 2016 (Office of Management and Budget estimate) or into 2017 (Congressional Budget Office estimate). This is obviously good news since it means the nation will be incurring debt at a slower pace for the next five or six years. These projections fit well into our forecast of economic growth in the US through 2017, except for a relatively mild 2014 recession.

The US economy has completed its recovery from the last recession in the late 2010; however, unemployment remains stubbornly high.  The December non-seasonally adjusted unemployment rate was 8.3%.

Dr. Bernanke and the FOMC announced their interest rate projection yesterday.  It deserves a few comments.

1. The fact that the FOMC is expecting to keep interest rates essentially flat well into 2014 means that they expect unemployment to remain high, inflation to remain quiet, and the economy to remain troubled for that long.  We are expecting a better 2012 than the Federal Reserve Board seems to be anticipating.
2. We believe that this decision will hurt the lending environment.

As elected officials and political candidates wax eloquent about their plans to restore the economy and “put America back on track,” we would like to take the opportunity to provide our own evaluation of the state of the economy. It can be a bit challenging to believe that 2012 will be better than 2011. The past year’s headlines screaming “Double-dip Recession!” or “European collapse imminent!” distracted many from the steady stream of positive economic news.

It may be painful, but go back in your mind to 2008. There was great uncertainty in the financial markets and in the banking industry. Trust was gone. Over-valued toxic assets were ruining balance sheets and investor confidence. Then, the Federal Reserve Board announced its $700 billion TARP, which was suppose to make everything better. Yet, doubt and fear prevailed, and the US economy sank into the Great Recession.

The USA has gas - a lot of it. We are of course talking about the supply of natural gas in this country; a supply that has become more abundant because of shale-gas and fracturing. The logical economic spin off benefit from this supply trend is remarkably low pricing for this important energy source. The favorable pricing looks likely to continue and it is changing people’s plans on everything from constructing coal, wind, and nuclear power facilities to providing a competitive edge to manufacturers who use natural gas as a primary source of energy.

If it can happen there…

It is time to get off the sidelines and into the game.  The data coming out of the US and foreign economies is looking better and better.  For example, Wholesale Trade data through November is now available, and the report is good.   Durable Goods Wholesale Trade is up 12.3% year-over-year and Nondurable Goods Trade is up 15.9% year-over-year (annual data in both cases).  These numbers are holding up so well because the industrial base of our economy is more than making up for the lackluster performance of housing and nonresidential construction.  You can see t

We had been saying the last half of the year would be volatile but essentially flat, and it was. The S&P500 ended 2011 virtually even with the beginning of the year. That’s pretty boring considering all the wild up and down movement during the year and flat is very unhelpful if you are trying to build some wealth.

While it pays to keep in mind that there is a difference between “looking good” and “looking up”, we are nonetheless pleased to report that the November residential building permits data showed improvement in all parts of the country, even though that improvement may not be evident from the quarterly year-over-year comparison illustrated by the chart.  Even in the Northeast, where the year-over-year comparison is still negative, the number is less negative than it was earlier in 2011.