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Could the U.S. economy become the world’s bright spot in 2012?

at 01:00 PM ET, 04/02/2012

Europe is still mired in its debt crisis. China may be headed for a slowdown. But in the United States, there are a growing number of signs that a recovery is on the horizon, driven by pent-up demand from the recession. Manufacturing last month performed better than analysts had expected despite a slowdown in demand overseas, as the closely followed manufacturing index from the Institute of Supply Management rose one point to 53.4 in March, as manufacturers brightened their forecasts for the near future.


(Diane Bondareff - Associated Press)
“We were struck by the positive tone of the comments by some manufacturers. Many stated that business was ‘robust,’ ‘strong’ or ‘picking up,’” writes Paul Dales of Capital Economics, a Britain-based financial analysis firm, in a new research note. Dales points out that exports have fallen as overseas demand has weakened, and U.S. manufacturing — which had a revival during the recession — could still ultimately head for a slowdown . But domestic demand is finally starting to bounce back as consumers are finally buying big items they put off during the worst of the recession.

Consumer spending has been rising, and Americans are making more plans to buy big-ticket items — cars, major home appliances, computers, and the like — which indicates that “there is, at present, enough pent-up demand to overcome high gas prices,” Wells Fargo wrote in a research note last week. In February, the bank noted, “vehicle and parts orders grew the most since October, while computer and electronics orders rose the most since December 2010.”

ISM’s non-manufacturing index has risen as well in recent months, reinforcing the notion that “domestic demand may be taking over as the main driver of US growth,” as opposed to overseas driven growth, Dales adds.

That’s not to say that everything’s rosy for the United States this year: Rising gas prices are still dampening consumer confidence; our housing market is still a mess; and a sharp slowdown in Europe or China could send the U.S. economy south yet again. But while it could be better, the outlook for the United States still looks sunnier than elsewhere, relatively speaking.

On the flip side, Goldman Sachs’s Jan Hatzius believes that this year’s upturn is likely to be short-lived, as there’s a temporary boost from warm weather, and many of the recent indicators look lukewarm. “All told, we believe that the numbers are likely to slow to a pace that looks much more consistent with a 2% rather than a 3% or even 3.5% growth pace through the end of the second quarter,” he wrote in late March.

 
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