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January 7, 2011

Our 2011 Economic Outlook

After a full year of following economic statistics and changes in our country's employment, currency, fiscal debt supply, and interest rates (among other things), we felt it was time to give it a shot at predicting 2011's leading economic statistics. For 2011, we are focusing on employment, inflation, and growth.

Employment








In terms of jobless claims, we project that claims will steadily fall throughout 2011, with the exception of fall layoffs due to construction job losses. Increases in jobless claims could also occur in between June and August as some schools may cut teaching positions to account for revenue losses from a lack of state and local government funding.











From the unemployment and job creation side, job growth will be better in 2011 than 2010. Most of the hiring, in our opinion, will happen between May and August as companies look to bring in new talent from recent college graduates (this does not imply that college graduates will have an easy time finding a job).

Construction and state/local government losses will present the biggest lag, especially in the fall. Since there are many "underground" unemployed, the unemployment rate will not improve by much in 2011 as these people come "out of the woodwork" and become accounted for as members of the workforce. Despite our estimate of an increase in unemployment early in the year, that surge could occur later and push the unemployment rate above 10.5% until May.

Unemployment should gradually fall throughout the remainder of the year, again, we would not be very surprised if the unemployment rate was above 9.5% at this time next year. A boost in the employment could occur if equity prices show surprise upside. Why? Because we feel that good stock performances may boost Baby Boomers off the fence and into retirement, especially those workers who could not retire as a result of the 2008-09 market drop. This increase in retirement could help open more job opportunities for those unemployed.

Inflation






The cheap dollar will be the lead cause of increased inflation, starting in 2011. CPI and PPI numbers will peak in the late summer as the increased cost of production (through oil price increases) covers the entire consumer marketplace. Traditional inflation measurements (like those above) will still be low because of the depressed housing market and other asset prices. If the government ran an inflation figure that included only immediate consumer needs, the rate of price changes would be much higher.

GDP




Our GDP forecast for 2011-13 is above. The long-term problems that we are creating will not come to roost for awhile. In fact, a recession in 2013 may not be caused by these problems, but by the business cycle. However, look for people to consume less as the promises of state pensions paying out decline. Inflation over time will also erode our economy's ability to grow our output annual.

Other Predictions

China will lead the world in growth and inflation in 2011. Watch for the Chinese to continue to separate themselves from the dollar as that attachment is causing them to produce more money (thus inflation).

Interest rates in the U.S. will go up. While Rick Santelli predicts the 10 year bond to touch 4% at its peak in 2011, I believe that it will hit 4.3% late this summer. This will be because investors will leave Treasuries for commodities due to a better return. At that point, there is less money to invest in lending to the government, therefore the returns (interest rates) have to improve. The lowest rates for the year could actually occur in November as job losses may surprise a few people and bring fear of another dip.

The dollar will continue to weaken in 2011 led by the Federal Reserve's ridiculous policy of further easing and the remainder of the world's commitment to austerity. Look for the Swiss franc and the Australian dollar (yes, I said Australia) to be the world's currency leaders in 2011.

We will open a new tab called "economic forecast" and as new data comes in, it will update and compare against our forecast for 2011. At this time next year, we can look back on how we did.

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