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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

December 31, 2010 at 11:00 AM

Markers for the economy in 2011

Before I wobble-off to the martini-infested precincts of New Year’s Eve, here are some things to watch in the coming year. It’s not a forecast, but rather some important focal points that will have an outsize bearing on how the economy performs. Add your own in the comments section, and have a great New Year.

1. Will growth in gross domestic product translate into robust job creation and better wages for more Americans? One forecasting firm sees growth next year at 4.4 percent, a rate that traditionally would have caused large spurts of hiring. In recent years, GDP and the Dow have told less about the condition of average Americans. We’ll see how offshoring of jobs and much leaner, and more profitable, companies affect the old GDP-jobs calculus. Little in the forecasts indicates that the relatively stagnant average wages of the past three decades will change. And even the most optimistic GDP forecasts still mean years of high unemployment?

2. Will the stimulus of extending the Bush tax cuts, including for the richest Americans, offset or even outweigh the falling off of the real stimulus enacted in 2009? If history is a guide, they will, at best, make the rich richer but not produce many new jobs. But maybe this time is different. Still, it will be fighting the headwinds of states losing federal stimulus money, projects winding down and the end of Census hiring,

3. The Republicans only won the House of Representatives, but more conservative policies are in store (either that, or just gridlock). It’s a given that both parties are controlled by corporate interests. But the conservative philosophy of self-regulating markets, less government intervention, etc. may get another test ride.

4. What will be the consequences of the Federal Reserve’s QE2? Will it bring serious inflation, as a few fear? Has it put hot money into the world economy that’s already cooking up the next bubble? Or did Chairman Ben and colleagues get it just right, including helping the stock market rise?

5. Will China and Asia keep growing faster, detaching themselves from slow-growth American and Europe? Or is the Mother of All Bubbles simmering among Chinese assets, and beyond the control of Chinese authorities to cool it?

6. Watch oil prices. Every increase beyond $90 starts to strain the recovery, and oil and other commodities are rising because of demand in developing nations.

7. Sovereign debt will remain an issue, even putting severe pressure on the Eurozone. But what about the Too Big To Fail Banks, the shadow banking industry and all their “innovations”? They’re still out there…ticking.

Today’s Econ Haiku:

2010 whizzed by

Failing bullish forecasters

Better luck next year

Comments | More in Banking, Deflation, Dollar, Energy, Eurozone, Federal Reserve, Global economy, Great Recession, Income/living standards, Jobs/Unemployment, Macro/Big picture, Outlook

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