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Wednesday, 04 January 2012 18:08

Dr. Gregg Dimkoff: West Michigan and National Economy

Written by  Gregg Dimkoff
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Dr. Gregg Dimkoff
Grand Valley State University
Seidman College of Business

The U.S. economy has grown in slow fits and spurts since bottoming out early in 2009, and that trend is likely to continue in 2012. Neither the Federal Reserve nor Washington’s politicians have any magic bullets to juice the economy. Instead, growth will be organic, generated internally by businesses and other employers as they respond to pent-up demand and higher levels of consumer confidence. Preventing the economy from generating higher growth rates will be a slowdown in global commerce because of an almost certain recession in Europe and slowing growth in China. Slower worldwide growth will reduce demand for U.S. exports, constraining U.S. growth to modest levels.

There is very little evidence that either short-term or long-term interest rates will increase significantly during the year. The Federal Reserve Board and moderate business demand will work to keep both rates low. That’s good news. Higher interest rates slow economic growth, and the economy isn’t strong enough to withstand much slowing. Further, the Fed will be hesitant to change interest rates in the months prior to a presidential election for fear it will influence the election, or at the very least, have to defend accusations it tried to do so.

The national unemployment rate will continue to fall slowly, perhaps reaching 7.5 percent to 8 percent by the end of 2012 compared with 8.6 percent in November 2011. Michigan’s unemployment rate will continue to fall faster than the U.S. rate, but — of course — it has further to go. It decreased to 9.8 percent in November, the first time in three years it dropped below 10 percent. It should continue to fall throughout 2012. Even better for West Michigan, the unemployment rates for the Grand Rapids-Wyoming, Holland-Grand Haven, and Kalamazoo-Portage MSAs now stand at about 7 percent and will improve slowly throughout the year.

The depth of the developing eurozone recession and the degree of slowdown in China are the two most significant wild cards in predicting U.S. economic growth for 2012. That’s the weakness in making economic forecasts, and why the answer to the question, “How many economists does it take to change a light bulb?” is, “Seven, plus or minus ten.”




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