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Forecast for 2011 economy: higher stocks but still few hires

Tis the season … for financial seers to tell us what they think will likely happen to the economy in 2011.

Don't get your hopes up. Nobody saw this last recession debacle coming, so why go back for another round of blind crystal ball gazing? Well, maybe a few of the better minds learned something from all the bubble burstings and incorporated that information in their latest look-aheads for the new year.

Let's start off with Federal Reserve Board Chairman Ben Bernanke, who took that rare step Sunday night and agreed to a sit-down interview with CBS TV's 60 Minutes news show. You can watch Bernanke often when he testifies on Capitol Hill. But a broadcast interview — in which the Fed chairman speaks more like a real person and less like a Washington bureaucrat — is unusual. Let's boil down what he said into five quick points:

1. It may be another five years before the country's jobless rate drops to traditional levels of 5 or 6 percent. (It rose to 9.8 percent last month from 9.6 percent in October.)

2. An "unusually high" 40 percent of the unemployed have been jobless more than six months. "Skills erode and their attachment to the labor force diminishes," Bernanke said. It may be a "very long time" before they can find a "normal working position."

3. The Fed's latest move to bolster the economy, called QE2 or "quantitative easing" may have some risks to it. But doing nothing — as the Fed chose to do in the 1930s, aggravating the Great Depression — is a far greater risk, Bernanke said.

4. The economy is closer to encountering deflation — a spiraling decline in prices and wages — than to inflation. "Fear of inflation is overrated" at the moment, the Fed chairman argued.

5. The high jobless rate is Bernanke's biggest concern. "People get worried about the future. That is the primary source of risk," he warned.

A far more bullish forecast — at least for investors — comes from Goldman Sachs, the Wall Street firm everyone loves to gripe about while wondering how the firm is so profitable. The investment banking powerhouse expects the S&P 500 will rise nearly 25 percent to a level of 1,450 in the next 12 months, propelled by strong corporate profits, easy monetary policies and an improving U.S. economy.

Some of the regional Federal Reserve banks, Richmond and Chicago among them, see the U.S. gross domestic product hovering near 3 percent and a slightly lower unemployment rate in 2011.

The trick is, it takes a 2.5 percent GDP just to keep the jobless rate where it is, because of population growth and new people entering the job market.

To me, we're being whipped by some conflicting trends.

First, many major companies are enjoying stellar earnings, but they are not hiring.

Second, a stronger stock market in 2011 will boost consumer confidence and repair some damage to retirement accounts bludgeoned in 2008 and 2009. But in Florida, still shrinking home prices may undercut bullish sentiments.

Third, gasoline prices are sneaking north, averaging more than $3 a gallon in South Florida, with Tampa Bay and most of the state prices right behind, near $2.90 or above. Woe to thee, commuters, next year.

Bottom line? Next year beats this year. Got a job? Fight hard to keep it. Need a job? Stay visible. Keep pushing. Make 2011 your year.

Robert Trigaux can be reached at trigaux@sptimes.com.

Forecast for 2011 economy: higher stocks but still few hires 12/06/10 [Last modified: Tuesday, December 7, 2010 7:49am]
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