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Kimberly Amadeo

2012 U.S. Economy in Review — Waiting to Inhale

By December 27, 2012

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In 2012, business leaders waited for the outcome of one uncertainty after another. As a result, it seemed the economic spark never got enough oxygen to really burst into flame, even though the fuel was there.

The biggest contributor was the 2012 Presidential election. It was a very close race between two candidates with radically different approaches to stimulating economic growth. The race itself slowed economic growth, as businesses waited to see what direction the country would take.

The second largest contributor was from the ever-pending fiscal cliff. Uncertainty over future tax rates kept $1 trillion of corporate expenditures on the sidelines, waiting for a resolution before it could be safely invested.

In the first half of the year, many businesses were waiting to see whether Obamacare would be shot down by the Supreme Court on June 28, 2012. It wasn't, but this uncertainty slowed business expansion in the first half of 2012.

The Eurozone debt crisis also wreaked havoc with the U.S. stock market. Uncertainty over whether the European Central Bank (in other words, Germany) would prevent Greece, Spain and Italy from defaulting on its debt sent the Dow down 1,000 points in May.

On a lighter note, some investors were waiting to see if the world would end on December 21, 2012, as predicted (some said) by the Mayan Calendar. Fortunately, it didn't, so we can find out how the other less-catastrophic uncertainties will resolve in 2013.

With all this uncertainty, why did the economy keep growing?

First, the Federal Reserve kept feeding it fuel, in the form of more monetary stimulus. The Fed relied on various forms of quantitative easing, announcing QE3 in September, and QE 4 in December 2012. This kept interest rates low.

Second, foreclosures started to abate after Federal Courts settled with banks over the robo-signing accusations. As a result, the housing market got better

Third, consumers waded through a lot of their debt, and resumed shopping. This was despite a lower credit card use. However, the Fed monetary stimulus resulted in lower consumer lending rates. This allowed people to take on auto, furniture and education loans.

What It Means to You

Ignore any prophets of economic doom. The U.S. economy continued to grow in 2012, despite all the uncertainty. The fiscal cliff will be resolved -- perhaps with two steps forward, one step back -- but there is a sea change in Washington, and the process reflects that. The strength of the U.S. economy is powered by the creativity, inventiveness and durability of the American people and businesses. It was not and will not be stopped, even by our elected officials.

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Comments

January 1, 2013 at 1:16 pm
(1) Chan says:

Wish you alll very happy and prosperous new year and for the nation
A healthier new economy to come.

January 1, 2013 at 2:48 pm
(2) useconomy says:

Thanks, Chan. The same to you and to all the readers of this site. I happen to think 2013 will be much more prosperous.

Kimberly

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