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How will the U.S. economy fare in 2010?
Better than in 2009, most likely. The Federal Reserve is forecasting 2.5% - 3.5% GDP growth rate for the year. Most forecasters agree, more or less. But there is little consensus of just how strong the recovery will be or how quickly it will take hold. Here's a sampling of the good, the bad and the ugly factors that will affect the economy this year.
Economists and forecasters generally agree that 2010 will be another year of high unemployment. Most say job losses will stop rising. It's likely that the unemployment rate will remain 10%. The Federal Reserve pegs the jobless rate for 2010 at around 9.5%
However, recent jobs reports from the U.S. Bureau of Labor Statistics (BLS) have indicated the job picture may have started improving. Both the number of unemployed persons and the unemployment rate declined in November. Job losses for the month fell sharply from those of the previous three months.
Some 20% of employers said they plan to increase the number of their full-time, permanent employees, in a recent survey by Careerbuilder. That's up from just 14% last year. Additionally, some 11% of employers say they plan to hire part-time workers in 2010.
However, the survey found that employers are keeping a close eye on the economy, and are ready to back away from hiring plans if the recovery falters. Read the full survey, here.
Homebuilding remains a sore spot in the economy and is likely to remain that way this year.
On the minus side, many observers expect a lot more foreclosures in 2010, which drive up supply and drive prices down.
On the plus side, the extended federal tax credit for first-time buyers is expected to generate perhaps half a million sales this year, mortgage rates remain very low, affordability has improved as home prices have tumbled, and sales of existing home sales hit a two-year peak in November.
Manufacturing in December expanded at the fastest rate in more than three years, Bloomberg.com reported, based on the latest factory index prepared by the Institute for Supply Management. The index was 55.9. Any rating above 50 signals an expansion. This was well above the consensus forecast for the index, Bloomberg said.
Most economists agree that increased consumer spending is essential for a strong recovery. Unfortunately, consumer spending remains a wild card for 2010. Consumers increase spending when they perceive their jobs as secure, employment and opportunities rising, so a surge in consumer spending doesn't seem likely at least until the economy starts to gain jobs again.
On the other hand, consumer confidence has been rising in recent months. It rose modestly again in December, according to The Conference Board Consumer Confidence Index, when consumer expectations for the short term rose to a two-year high. Their outlook for the labor market improved, too. But short-term expectations remain at a 26-year low, says The Conference Board.
As the world economy improves, energy prices will rise in 2010, but not to the vicinity of their 2008 highs, most analysts say.
The U.S. Energy Information Administration (EIA) expects regular grade gasoline to average $2.83 a gallon at the pump this year, versus $2.35 in 2009. Likewise, diesel is expected to increase from $2.46 per gallon to $2.96.
Home heating oil costs this winter will average some $1,911 per household versus $1,864 last winter, EIA says. However, if you use propane to heat your home, you can expect to pay $778 this winter, down from $889 last year, thanks to new record-high gas inventories.
On the Other Hand
The consensus is for modest economic growth this year, but naturally, not everyone agrees. Harvard University economics professor Martin Feldstein warned that the recovery may falter as federal stimulus spending and tax incentives for homes and cars wind down, Bloomberg.com reported.
"These forms of stimulus will be missing in 2010, creating a serious cloud over the near-term economic outlook," Bloomberg quoted Feldstein during a recent panel discussion.
"It will be difficult to have a robust recovery as long as the residential and commercial real-estate markets are depressed and local banks around the country restrict their lending," he added.