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Investing Specialists

More Slow, Steady Growth in 2012

We saw some strong data at the close of 2011, but that doesn't mean a big boom is coming, says Morningstar's Bob Johnson.

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The economic news flow was very good this week with decent reports on employment, autos, and manufacturing. Retail news was mixed as good top-line growth was offset by deep discounting and lower margins. It was a great holiday season to be a customer but not as good to be a retailer. Exceptionally warm weather didn't help retail sales, either. Overall, the market liked the economic news and finished on the plus side, but worries about Europe slowed down the market by week's end.

December and Fourth-Quarter Data Strong; Pause Possible in Early 2012
A lot of recent data, including this month's jobs report, were unusually strong due to special circumstances. Weather has been great, seasonal factors have been a big help, tax credit expirations aided December, and autos have benefited from a post-tsunami boom. As bullish as I am on the U.S. economy, I caution everyone not to extrapolate recent strong results. In 2010 we had a strong fourth quarter only to see growth drop back to almost zero in the first quarter. While I don't see something that drastic this time around, a fall from 3.0%-3.5% in the fourth quarter to 2% in the first quarter of 2012 is probable--but that doesn't mean we're falling back into the abyss. Growth for 2012 as a whole should still be in the 2.0%-2.5% range, up from 1.8% in 2011.

Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.