Gearing Up for a Better 2012

Guest post by Dale Gunther

I recently read this excerpt from Time magazine: “The U.S. economy remains almost comatose. The slump already ranks as the longest period of sustained weakness since the Depression. The economy is staggering under many ‘structural’ burdens, as opposed to familiar ‘cyclical’ problems. The structural faults represent once-in-a-lifetime dislocations that will take years to work out. Among them: the job drought, the debt hangover, the banking collapse, the real estate depression, the health-care cost explosion and the runaway federal deficit.”

You might be surprised to learn that Time issue was from September 1992, but could very well be describing the most recent recession, or the one in 2001-2004 for that matter.  All shared common woes, yet all have come to an end. And after this most recent recession, like the ones in the early ‘90s and early 2000’s, pessimism still persists after recovery has begun.

It’s important to remember that much of the wealth that seemingly abounded five years ago was imaginary, propped up by easy credit, a housing bubble and runaway spending.  So while times are not as “good” as they were then, some reasons for optimism are beginning to appear.

In 2011, the economy continued its slow rebound and is expected to grow further in 2012. The growth won’t be dramatic, but it will be something more important: real.

Some of the bright spots from last year include an economy that grew by as much as 3.5 percent in Q4 due to holiday spending, according to Moody’s Analytics chief economist Mark Zandi. Debt disaster was averted and the markets, though fluctuating wildly throughout the year, ended largely where they started (or better). And in the last months of 2011, every major indicator of economic health showed significant improvement: manufacturing, sentiment, holiday sales, e-commerce, inflation, and employment.

All good omens for 2012, which is expected to bring the following:

Economic Growth: Economists predict the U.S. economy will grow 2-3 percent—better than the less than 2 percent growth in 2011.

Employment: Current unemployment stands around 8.5 percent, but is expected to decrease by one percentage point as companies increase their payrolls by an average of 1.5 percent, according to a Duke University/CFO magazine survey. An Associated Press survey of three dozen economists predicts growth of approximately 177,000 jobs per month, compared to 132,000 jobs per month in 2011.

Housing: New housing starts will increase, fueled by record low mortgage rates and growth in new household formation. It may take more than this year to stop the foreclosure bleeding, but Moody’s Zandi believes many of the houses hanging over the real estate market may be cleared out by 2013.

Banking: Banking continues to consolidate, with the number of banks reduced from 7,476 to 7,384 in 2011, but most still have money to lend. The Federal Reserve plans to keep short-term interest rates near zero through at least mid-2013, making 2012 a great time for qualified borrowers to build homes and businesses.

All of the above is of course subject to global events out of our control, like the debt crisis in Europe or natural disasters like the tsunami in Japan. But if the past two recessions serve as a model, there is reason to believe that 2012 will see accelerated recovery, despite negative consumer sentiment.

This year will be the third year since the recession was officially declared as over. Wells Capital Management points out that during both recoveries that started in 1991 and 2001, year three represented a “Gear Year,” or a year when cultural mindsets (among leaders, businesses, consumers and investors) finally accepted that the economy was improving by moving into a “higher gear.” It was the year when most agreed the recovery was real and shifted their attitudes from cynicism and constant panic to widespread optimism.

And since attitude drives behavior, enhanced economic growth soon follows a gear year. Employers will believe they can hire, invest and expand; the unemployment rate will decrease; households will re-establish income through employment; and households will have more money to put back into the economy. It’s a snowball effect that will happen as soon as media headlines change and people believe the recovery is real and sustainable.

I echo the words of economic analyst Zachary Karabell who recently wrote, “We are not in desperate economic times. But we believe that we are, and that is as paralyzing today as it was when Franklin Roosevelt famously intoned on his inauguration that fear itself is the biggest obstacle.”

Here’s to a 2012 that brings real change in our attitudes and our economy.

Dale Gunther is vice chairman of the board of People’s Utah Bancorp, the holding company for Bank of American Fork , which is an Equal Housing Lender and Member FDIC. At the start of his 16-year tenure as CEO at Bank of American Fork, the bank had two branches and $80 million in assets; it now has 13 offices and more than $890 million in assets. Dale has served as chairman of the Utah Bankers Association and currently serves as an American Fork city councilman. This article should not be considered legal or investment advice. Seek legal and investment advice from your own qualified professional.

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