Photo by Ellen Miller

Monday, January 3, 2011

Economic Outlook: 2011-2012, from Forest2Market

From the January 2011 Forest2Mill newsletter.

Positive economic signs graced the holidays; retailers saw record holiday spending, fewer unemployment claims were filed, and the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 was signed into law on December 17. The new tax law will add some stability to the economy, as tax rates are now set for the next two years at 2010 levels. New tax breaks for businesses and individuals were included in the bill as well. We’ve also had a good run in the stock market, which—as of December 29—had returned the Dow Jones Industrial Average (DJIA) to August 2008 levels. 

We certainly hope that these signs of economic recovery are sustained throughout 2011. Unfortunately, when we plug the numbers into our econometric models, the results show that the improvements may be short lived. 

GDP Growth 
Our models show that GDP growth will continue in positive territory through the 2Q2011. By the beginning of 3Q, however, GDP growth will reverse direction and stay in negative territory through the end of 2Q2012. Only then will we see sustained GDP growth. 

Housing Starts 
Our models show that housing starts will remain in the low 500,000s throughout 2011 and approach 700,000 in 2012. The continued weakness in the housing market will mean that timber and lumber markets continue to struggle in 2011 and 2012. Those who are predicting a 2013 or 2014 recovery for housing appear to be on the right track. 

Prime Interest Rate 
Prime rates will increase by 0.5 percent (from 3.25 to 3.75 percent) by the end of 2011 and add another 0.5 percent by the end of 2012. 

Oil Prices 
Our models show that oil prices will remain about $80/barrel for the duration of the two-year forecast. The high points will fall in the March-June 2011 time frame, when prices trade in a band between $98-$102/barrel.

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