Most private economists forecast a modest 2% growth rate for the U.S. in 2012, with a pace subdued by housing woes, a lackluster job market, and cuts by government. Economists also warn of potential spillover from weakness abroad, including a mild recession apparently under way in Europe.
The forecasts call for slightly more growth than this year's overall rate—which economists surveyed by The Wall Street Journal estimate will come in at about 1.7%.
To be sure, the recovery has shown surprising muscle in the final months of 2011—prompting many economists to raise their fourth-quarter growth estimates to 3.5% or more. Upside surprises aren't out of the question.
But for the most part, the outlook for 2012 is being shaped by four themes:
Global weakness—which threatens to undermine U.S. exports and could snowball if the European crisis deepens or another problem erupts.
Global growth will slow to around 2.7% in 2012 from about 3.0% this year, but there will be wide variation from continent to continent, according to forecasting firm IHS Global Insight. Europe is likely in recession, economists say, while developing economies such as China will ease back on growth as they manage inflation.
That will limit, but not torpedo, the market for U.S. exports, which have been a relative bright spot throughout much of 2011.
"We know the global economy is going to slow. The question is by how much," said Nariman Behravesh, IHS Global Insight's chief economist.
The foreclosure problem—which will keep the housing market flat on its back.
Housing will continue to languish, with foreclosures holding down prices, sales and new construction. The past year saw a reduction in the overhang of empty or financially stressed homes. But there's still a lot of overhang left.
The supply of "shadow" inventory—homes that are being foreclosed on or where their owners are three or more months delinquent—stood at 3.4 million in October, down from a peak of 4.2 million, according to Barclays Capital. The bank projects a steady fall to 2.7 million by the end of 2012. That remains well above a shadow inventory of 1.5 million at the beginning of the recession.
A lackluster job market—which means U.S. businesses will keep adding jobs, but at a rate too slow to put much of a dent in unemployment.
Forecasters at Wells Fargo predict the economy will add an average of 123,000 jobs a month—or about the number needed to keep pace with population growth.
This means the politically salient unemployment rate should stay above 8% through the November elections.
Economists see the job market hobbled by the slow growth in demand as well as structural challenges, including a mismatch between the skills of many unemployed workers and skills demanded by companies.
Weak job gains will result in only "marginal improvement" in personal income, according to Wells Fargo.
That means a problem for consumers in 2012. They stepped up spending in 2011, but can't continue to do so, say economists, if income growth remains subdued.
Consumer spending is projected to rise at a relatively sluggish pace of around 2.0% in 2012, down from the 2.6% annual rate economists expect for the fourth quarter of this year.
Government belt tightening—which will keep subtracting from growth.
The state and local government sector, where layoffs and budget cuts have weighed on growth in the past year, will subtract 0.3 percentage points from 2012 growth, IHS Global Insight says. Cuts by the federal government will subtract .23 percentage points from growth.
More than just budget cuts, though, Congress's acrimony and propensity for last-minute deals will weigh on business and consumer confidence. Economists' 2% growth projection assumes the 2011 payroll tax cut will be extended into next year, even though that hasn't happened.
Next year, the U.S. economy will continue to recover from the 2007-2009 recession, but it remains a long road back.
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