Diane Swonk was one of several economists to speak at the Executives’ Club of Chicago’s annual economic outlook luncheon program on Thursday. Economists were asked to make predictions about what to expect in 2012, and Swonk weighed in with a lukewarm forecast. Swonk is skeptical of a major drop in unemployment, expects full year GDP growth to be at around 2.25 percent, and for the Dow Jones Industrial Average to finish 2012 at about 13,500.
Additionally, she predicts that the Federal Reserve will maintain its resolve when urging companies to invest free cash flow into the economy. When it comes to personal investing, she believes that Real Estate Investment Trusts could be a good investment due to high demand for rental properties as the housing market remains slow.
Self-described optimist Mitt Romney should take a look at this. Actually, I’m sure he has. He just won’t share the economic optimism. Peter Orzag, the former director of the Office of Management and Budget in the Obama administration, points to the economy’s investment in the productivity-boosting software and equipment sectors.
According to Orzag, private-sector investment in both equipment and software has spiked by more than 30%, and accounted for more than 60 percent of the total growth in gross domestic product since the end of the recession. The importance of this type of investment cannot be understated as products like software boost productivity and have a short lifespan, requiring companies to re-invest once again.
University of California at Berkeley economist Brad DeLong has studied this topic extensively, and concluded that “a high rate of equipment investment is a key cause of rapid growth.”
Another bright spot is the rise of investment with simultaneous job growth. Often, companies with fat balance sheets will hesitate to hire new workers during periods of economic uncertainty. They would rather allocate their capital towards measures to improve productivity. The combination of investment in both jobs and productivity is a great sign for the economy.
Orzag suggests that even if software and equipment spending slows a little, it should still be one of the economy’s bright spots in 2012. The question becomes, will Mitt Romney transform himself from someone who says he is an optimist, to a real, genuine optimist?