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INVENTORIES: Businesses are restocking shelves and warehouses, more confident that customers will buy their products. In October, their inventories were up 8.7 percent from a year earlier. An increase in inventories is expected to account for perhaps a third of growth this quarter. Once they peer into 2012, economists turn cautious. Bernard Baumohl, chief economist with the Economic Outlook Group, says that stronger consumer spending "is absolutely unsustainable. .... Wages have not kept pace with inflation all year." The government says that once you adjust for inflation, weekly earnings dropped 1.8 percent from November 2010 to last month. Consumers have used savings or credit cards to finance their purchases. Once bills come due in early 2012, Baumohl foresees a cutback in spending. Baumohl is so pessimistic that he expects the economy to shrink at a 0.2 percent annual rate in the first three months of 2012 and to end the year with no more than 1.8 percent growth. Europe is almost sure to slide into recession, even if its policymakers find a solution to the continent's debt crisis. In the worst case, a chaotic breakup of the euro currency could ignite a worldwide financial panic. Joe Echevarria, CEO of the accounting and consulting firm Deloitte LLP, says his company's clients are delaying hiring or expansion decisions to see if Europe's crisis will be resolved.
Another worry -- again -- is Washington. President Barack Obama and Republicans in Congress still had not broken their impasse Wednesday on how to end a cut in the tax that pays for Social Security. Without an extension, taxes will go up $1,000 in 2012 for someone making $50,000. Failing to extend the tax cut, combined with the end of long-term unemployment benefits and other federal budget cuts, could shave 1.7 percent points from growth in 2012, warns Mark Zandi, chief economist at Moody's Analytics. Forecasters are also chastened by the past two years. Since the Great Recession officially ended in June 2009, the economy has stalled twice just when it appeared to be gaining momentum. In mid-2010, businesses slowed spending sharply. This year, the damage came from protests in the Middle East that drove oil prices higher, the earthquake in Japan, budget cuts by state and local governments and the stalemate in Washington. But Joel Naroff of Naroff Economic Advisors says he thinks the fears about next year are overblown and the economy will grow 3 percent in 2012. Next year will be all about jobs. If job growth keeps accelerating, the economy is much more likely to meet Naroff's predictions than the pessimists'. In addition, Naroff says, that's because consumers and businesses have grown more confident. If Europe averts disaster
-- a crackup of the eurozone -- and endures only a mild recession, as Naroff expects, the impact on the United States will be minimal, he says. "If you stopped the average person on the street and asked, 'Are you slowing your spending because of what's happening in Europe?' they'd ask,
'What planet are you from?'"
[Associated
Press;
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