For once I am basically in agreement with most mainstream economists on what is ahead in 2011.
We are still in the virtuous cycle ramp that follows an economic downturn. Most of the differences between economists are about the strength of the ramp and what particular sectors will lead and lag the economy as a whole. Wild cards include possible actions by the Federal government, the Federal Reserve, and bankers in China and Europe. Double wild cards include natural catastrophes and military incidents.
Leading the trend both globally and in the United States will be manufacturing. This could be more than a bounce-back in the U.S. because it is an increasingly attractive place to do manufacturing now that wages are closer to the global norm. People forget that losing factories to China has not destroyed as many jobs in the past century as advances in information technology and automation have destroyed. I expect increased demand in the U.S. and globally for U.S. products, and the beginnings of a round of capital investment in new and expanded U.S. manufacturing facilities.
Lagging the trend will be the housing and general construction market, which in turn creates demand for wood products, metals, and etc. However, there is very, very little new housing stock in existence right now, in a nation that typically adds over 3 million people each year. Also, a lot of people are overcrowded. College and high school graduates from the past few years are dying to get a job and move away from mom & pop. Even if people who gain employment enter the housing rental market (instead of buying houses), this will make landlords happy and more willing to buy up existing housing stocks. I don't expect a price boom in 2011, but building new houses (and apartments) is going to start looking attractive in some specific markets as the year goes on. If banks gain confidence, we could get back to a normal balance between buyers and sellers by the end of the year. However, predicting timing is difficult because the decisions are driven by diverse buyers' mental states.
Bonds should fall (resulting in higher interest rates), but that is dependent on Fed action and risk assessments by bond holders. The stock market should rise because return on investment, at least in the next few years, should be a lot better than investments in bonds or real estate. In the stock market, however, it will be more important to look for companies with long-term growth prospects, rather than just growth due to bouncing back from the recession.
The national debt is going to grow by leaps and bounds because even strong economic growth won't generate enough tax revenue to cover the spendthrift ways of the Democratic Party and Republican Party. The 2011 budget is already shot and 2012 is an election year, so expect the new Congress of 2013 to contend with a tidal wave of debt.
Jobs should be more plentiful in 2011, but employers will still be able to pick the best workers and offer relatively low wages. This is good (for the economy, not for the unemployed) because low-productivity workers are a drag on businesses. Good workers help generate the profits that are needed to expand, and which eventually force companies to hire and try to train less reliable workers. The unemployment rate should drop by a percent or two, but will remain brutally high for the least employable citizens.
The Federal Reserve should have already raised interest rates to the 2% level, but I expect them to keep rates near 0% for the entire year, because they have a proven record of irresponsibility and incompetence. Or perhaps I should say they are competent at serving their fellow bankers, but not at their mission of maintaining relatively even economic growth. Why say rates should rise even with continuing high unemployment? Because any rate under 4% will support economic growth, and having to raise rates rapidly later on will lead to bad decision making or even panic.
People at every level are looking for opportunities, and 2012 will be a good year for many.