Market analysis

Economic Outlook: Uncertainty vs. Modest Gains

By Mark Vitner |

Though Europe’s financial crisis continues to impact the overall economy, the U.S. is less dependent on exports than other developed economies and appears to riding out the global economic storm relatively well. Real gross domestic product is expected to rise an estimated 2.0 percent pace in 2012 and 2013, although uncertainty surrounding GDP growth prospects remain. In addition, a number of other unknown factors may have an impact on future growth. The Bush-era tax cuts and temporary extension of the 2 percent Social Security tax cut are set to expire at the end of the year, the onset of new taxes associated with the Affordable Care Act will kick in on Jan. 1, 2013, and significant budget cuts may have major impacts on the defense and healthcare sectors.

However, the most likely outcome is that Congress will extend most, if not all, current tax breaks and forestall harsh spending cuts, despite the prospects of another credit rating downgrade. While the nation’s fiscal prospects remain bleak, there are still plenty of reasons to be optimistic about the U.S. economy. Current U.S. economic improvements are more broadly based and fundamentally stronger than at any time since the recession ended. Nearly every part of the country has improved during the past year and the housing sector now appears to be in the early stages of a sustained recovery. In fact, a few industries are booming, most notably the technology sector. The energy boom also remains in full swing, although the sharp pull back in natural gas prices has cut into exploration and production activity in that sector. Moreover, lower energy prices and the increased certainty of energy supplies has led to resurgence in the nation’s factory sector, with many industries moving production back to the U.S. Agriculture also continues to perform well.

For more on the midyear outlook for commercial real estate, read "Market Momentum."