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CME Economist Upgrades 2012 US Economic Outlook

CME Economist Upgrades 2012 US Economic Outlook

09 January 2012

ANALYSIS - According to the CME Group's Chief Economist, Blu Putnam, US economic improvements in 2012 will start with real GDP forecast to grow around 3.5 per cent to 4.0 per cent, writes Sarah Mikesell, TheCropSite senior editor.

Mr. Putnam also estimates the unemployment rate will decline below 8 per cent by the end of 2012 and core inflation, excluding food and energy, will creep higher to 3.5 per cent by December 2012.

This is a substantial upgrade from Putnam's previous 1.5 per cent to 2 per cent forecast for 2012, in terms of real GDP. Mr. Putnam and the CME Group are not, however, revising their expection that the US will average around 2 per cent annual real GDP growth for the decade, but rather that 2012 will be considerably above average.

Looking a few years out, Mr. Putnam expects 2013-2014 will be troubled with fiscal and monetary policy risks that may bring the economic growth rate back down toward the expected average for the decade.

Mr. Putnam and the CME Group offer this optimistic perspective on 2012 real GDP growth for the US despite expectations for a recession in Europe and a significant growth deceleration in China.

If the forecast for the US goes as predicted, there are important implications. Mr. Putnam said the US long-term bond yields could come under considerable upward pressure as the year develops, and a debate over Federal Reserve policy in the second half of the year could destabilize shorter maturities, such as the 2-year Treasury note.

While this economic growth forecast might appear to be good news for US equity markets, S&P 500 companies get half their cash flow from outside the US on average. According to Mr. Putnam, the forecast for China and other emerging markets is for slower growth and for Europe the estimate is for a decline in real GDP.

Regardless, strong US growth could offer a calming influence on world equity markets, resulting in lower risk premiums and higher price-to-earnings ratios, which might also mean reduced equity market volatility as the year progresses.

Further Reading

You can view Mr. Putnam's full report, US Economic Outlook Upgraded for 2012, by clicking here.

Sarah Mikesell, Senior Editor

Sarah Mikesell, Senior Editor

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