Europe continues to hang over our heads as does the potential failure of Congress to extend the payroll tax cuts. Nonetheless, the near term trajectory of the economy is meeting or exceeding my expectations.


Sales rose an estimated 6.6 percent to a record $11.4 billion on Black Friday, typically the busiest shopping day of the year for Americans, while the traffic at stores rose 5.1 percent, according to ShopperTrak.

The day’s sales growth was the strongest percentage gain since 2007, when sales rose 8.3 percent on the day after Thanksgiving, said Ed Marcheselli, chief marketing officer at ShopperTrak, which monitors retail traffic.

The fundamentals for a US recovery are in place. Without trip-ups we should be looking at accelerating growth through 2012 and the potential for an enormous boom.

There will also be inflation. Pay no attention to those saying that inflation cannot pick up unless wages pick-up. It can and it will. What they miss is that labor’s share of national income will fall and probably at a slightly faster pace than before the recession. Just my baseline guess.

Nonetheless, the point is that the inflation will be generated by greater corporate profits and much higher returns to natural resource extraction.

Eventually the natural resource extraction returns will fall as capital and technology flood into that sector but I expect that the increase in corporate profits as a fraction of national income will continue for the foreseeable future.

FRED Graph