People participate in a demonstration against the fiscal cliff showdown and the possible cuts to Medicare on Capitol Hill in Washington, DC on December 18, 2012. UPI/Kevin Dietsch | License Photo
For all intents and purposes, the U.S. economy was something of a magic act in 2012, which is to say it was nearly impossible to say exactly what was keeping it afloat.
To say the recovery stalled in 2012 is accurate, but there's more to it than that. Job numbers suddenly looked good in late 2011, but the momentum faded almost as soon as the new year was ushered in. On the other hand, as Yogi Berra is given credit for saying, 2012 was "deja vu all over again," and the start of 2012 looked exactly like the start of 2011, with the same attempt to break into a sprint in the early going and then suddenly in February and March, the economic wheezing started.
This should be no surprise. The last truly significant muscle that Congress put into the U.S. economy was in February 2009 with the $831 billion American Recovery and Reinvestment Act that stopped a vicious downward spiral, but without enough oomph to make growth self-sustaining.
Growth, however, was self-sustaining in 2012 -- but the progress was underwhelming at best.
The gross domestic product, which measures U.S. productivity, rose 1.9 percent in the first quarter compared to the preceding quarter and 1.3 percent in the second quarter over the first. Surprising most economists, the economy picked up in the third quarter with 3.1 percent growth. The fourth quarter figure has yet to be determined, but the annual GDP potentially could land exactly where the U.S. Federal Reserve predicted in January it would be: Growth between 2.2 percent and 2.7 percent.
These are not glorious figures and the most impressive statistic for 2012, sadly, is the unemployment rate that started the year at 8.5 percent and has declined to 7.7 percent -- largely because many people gave up looking for work, which takes them out of the statistical pool.
The economic year might be called, "The Year of No Surprises," as there was surprisingly little response from Washington on all things economic.
"Jobs!" cry the Republicans. "Jobs!" cry the Democrats. But Washington barely even discussed a jobs program this year, let alone produced one.
Doing nothing has also produced one of the more frightening Washington policy decisions in memory, the agreement in 2011 to raise the federal debt ceiling, which Republicans agreed to under the mandate that a punishing U.S. budget be set up that would become law if a new agreement was not reached by Jan. 1, 2013.
The idea that elected officials set up a budget that the Congressional Budget Office says will throw the economy back into a recession -- simply as a threat to force further budget negotiations -- is beyond comprehension to many pundits. Russian roulette with the U.S. economy? Seems odd, but true, and negotiations on a deal appeared unproductive as the New Year approached.
The work of keeping the economy going has been left, all but entirely, on the U.S. Federal Reserve, which -- out of desperation -- has actually gotten creative on monetary policy in recent years.
The Fed's most effective tool for pushing the economy is to drop the overnight lending rate, the federal fund rate, and the Fed bottomed this out at zero to 0.25 percent in 2008. By January 2012, the Fed was promising to keep the rate there through 2014, which can be taken as a measure of a lack of confidence in a palatable turnaround.
By December, the Fed pledged to keep rates low until the unemployment rate falls to 6.5 percent, essentially giving away a trade secret that has historically been held close to the vest. The Fed is practically down to tweaking press releases as a way to squeeze each new drop of stimulus out of its policy arsenal.
But the Fed employed a few substantial tricks in 2012, including a pledge to keep spending $85 billion per month, roughly half on U.S. Treasuries and half on mortgage-backed securities. In addition, the Fed said it would maintain "operation twist," the name given to a policy of using proceeds from maturing, short-term notes and spending that on long-term notes. This extends the promise to businesses that lending rates would remain low for a longer period of time.
Policy hawks worry this will promote inflation, but that has been, so far, one of the silver linings in an otherwise drowsy recovery. In November, using the latest figures, consumer prices fell 0.3 percent with gasoline prices off 7.4 percent from October.
That pulled the annual unadjusted inflation rate at 1.8 percent, which is below the 2 percent target used by the Fed.
So, what's behind this recovery that's so slow it's almost surreal? In the first place, U.S. manufacturing held its own for most of the year with tepid growth from January to October. By November, the Purchasing Managers' Index had dropped to 49.5, just below the breakeven point of 50, showing contraction had begun.
The other bright spot in the economy for 2012 was the housing market, which began to show signs of a turnaround.
In some markets, homes for sale have been hard to find, prices are rising accordingly and foreclosure sales are on the wane. Home builders have registered eight straight months of solid growth in their trade association's confidence index.
As a side note, 2012 appeared to be the year in which some of the world's largest banks fell further from grace.
In April, five large U.S. banks -- Bank of America, Citibank, JPMorgan Chase, Wells Fargo and Ally Financial -- agreed to pay $26 billion to compensate homeowners for using "foreclosure mills" that pushed paperwork through the courts so fast that due process was tossed into the wind. By the end of the year more than a dozen banks were under investigation for manipulating reports used in setting the London inter-bank offered rate -- the idea being 1) profits and 2) making the banks look strong during the financial crisis.
That translates into duping shareholders and manipulating the interest rates on trillions of dollars of consumer and business loans. For that, British bank Barclays settled charges with a $450 million deal and Swiss bank UBS agreed to a $1.5 billion settlement. Large U.S. banks are under investigation, as well.
In sum, the U.S. recovery is riding on marginal gains in manufacturing and significant gains in exports, which have risen 12 percent on an annual basis since 2010 -- just shy of the 15 percent annual rise needed for President Barack Obama to reach his goal of doubling exports by 2015.
The other gain for the year is energy.
The country was founded on cheap energy -- all those New England rivers that powered factories in days of yore. As of 2012, the United States is suddenly on track to surpass Saudi Arabia as the world's largest oil producer.
U.S. production rose by 760,000 barrels per day in 2012, a record jump, and is set to reach 6.4 million barrels per day, much of it due to shale-formation extraction, which has created oil producers out of states like North Dakota and Montana, where unemployment is 3.1 percent and 5.8 percent, respectively.
That has helped hold prices down at the pump and kept air travel -- indeed, all travel -- affordable. The economy, slowly but surely, is on the move.
But, then again, so is a hungry tortoise.