1. GDP at 2.5 percent.
This is Ben Bernanke’s biggest fear for the economy. Growth at 2.5 percent (or lower) is too slow for companies to hire additional workers due to slack capacity and high productivity.
In turn, this reduces future sales and a downward spiral begins by which employers fire workers due to lack of demand.
2. State finances.
Individual states have major funding issues for 2011. The federal stimulus money ebbs early in the year and necessitates a reduction in spending and employment by state governments.
Education is one of the largest state expenditures and is likely to be cut the most unless the unions are willing to take cuts to keep their membership employed. The state fiscal issues are likely to generate higher sales and income taxes which will further pressure growth.
3. Residential real estate.
Residential real estate continues to building amounts of foreclosures and shadow housing stock. The recent Case-Shiller home price index have fallen four months in a row and show downward price pressure remains in the housing market. The shadow inventory of homes with mortgage delinquency and creditor owned remains extremely high.
The drop in mortgage applications along with the Conference Boards percent planning to buy a home in the next 6mths show a dearth of demand.
4. US fiscal crisis.
The 111th Congress left town without passing a 2011 budget that began October 1st 2010. This is the first time a budget has not been passed since 1974.
During the lame duck session, Congress wisely passed a CR for the budget until March 4th and means that the entire government is operating on stopgap funding at fiscal 2010 levels. The deficit remains over $1 trillion a year and forces the US government to borrow massively from the markets.
