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The New Year is here. Of course, now we are inundated with predictions regarding what will happen in the coming year. If you read 100 predictions, you would get 100 different scenarios. For example, in October Fannie Mae predicted that rates on home loans would fall in the first half of next year, while Freddie Mac forecasted an increase in rates. In addition, Fannie Mae Chief Economist Doug Duncan rated the chance of a recession at 40% next year while Freddie Mac predicts that economic growth will likely strengthen to about 2.5% in 2012. More recently, a survey of 20 top economists conducted by CNN/Money predicted the risk of a recession next year at only 20% next year. This survey expected the fourth quarter growth rate to be the strongest of the year with over a 3.0% growth rate, but grow to slow to an annual rate of 2.4% next year.

Slow growth next year but no new recession? Sounds like a replay of this year. Our advice? Don't get lost in predictions. Most of the time they are a reflection of what already has happened. Right now we have very positive trends with increased consumer confidence confirmed by the Conference Board's survey released last week. The two month increase was the largest such bounce since March of 1991 and brought the level of confidence to where it was this spring. The real question is, will these trends continue into next year or do we fall back into our "starts and stops" pattern of economic recovery? If you want a clue to that question, watch the employment trends. A stronger, permanent recovery only comes with an improving employment sector and the reading on employment this Friday will be an important indication in this regard.

With the European debt crisis hanging over the markets, our politicians continuing to act like children and now the markets worrying about the regime change in North Korea, there seems to be no end to the scary headlines. Even if the news is not scary, the media is pumping up bad news. For example, last week the National Association of Realtors adjusted home sales down for the past five years because they did not present accurate numbers. The headline? The recession caused worse real estate sales than we thought. The media seems to have lost the fact that existing home sales rose last month. New home sales were also surprisingly stronger, especially in the multi-family sector. Finally, real estate inventory is significantly lower than it was 12 months ago.

Through all of these negative headlines, the economic news is actually brightening our horizon. We had previously mentioned the precipitous drop in first time unemployment claims which is stoking optimism regarding possible future employment gains. Here is the point. The recovery is moving forward while worries overseas and in Washington are dampening our "public" enthusiasm. For example, the stock market has rallied significantly from the lows of October but despite this rally, interest rates are still at their historic lows and gas prices have not risen in the past several months. If the crisis in Europe were resolved and politicians were being cooperative, rates and gas prices would be going up based upon the positive economic news. We don't really care what the media "headlines" say. We care that these economic reports prod businesses to use some of the cash they are sitting on to pick up the pace of hiring. This is what we need for our current economic situation to continue to get better into the first quarter.

Black Friday has arrived and that means that the Holiday spending frenzy has begun. This season is a very important measure of the health of the economy every year. This year, the results could be even more important. In our prolonged struggle to recover from the severe recession, we have encountered many obstacles. Initially, the housing crisis certainly put a major dent in the pace of consumer spending. The good news is that over the painful years of the recovery, consumers have been saving and this puts them in better shape to return to more "normal" spending habits. Indeed, retail sales growth has been strong for the majority of this year. But nothing is more important than the spending that occurs in the last quarter of the year.

Keep in mind that we still face obstacles. The European debt crisis is in the headlines every day and the fear is that a meltdown in Europe will be felt at home. Congress seems to be getting nowhere with regard to deficit reduction while state and local governments have been laying off workers for the better part of two years. The shadow inventory of foreclosures is holding the important real estate sector back. Where does that leave us? We need the consumer to lead the recovery right now. If consumer spending continues to be strong then the housing recovery will follow more quickly. Companies which are flush with cash will be more likely to hire. The November employment report to be released early in December will be a good gauge of business optimism going into the Holiday season. Our best hope? Everyone has a great Holiday season and gets the gifts they want and we have momentum going into the New Year.

When the government releases numbers, there is a mad scramble by economists to analyze what just happened. And what you see in the headlines is not only what is important. For example, on Friday the government reported that the unemployment rate dropped slightly. Even though it was a slight drop, any movement lower is good news. But wait, analysts were predicting an increase of almost 100,000 jobs last month and the increase was only 80,000. So that is bad news. We need at least 150,000 jobs added each month just to keep up with population growth. On the other hand, the previous two month's job numbers were revised up by over 100,000 jobs. So that more than made up for the deficit. This is good news. Is anyone besides us confused as of yet?

The bottom line is, the report was not extraordinary in any way. That means that the economic recovery is continuing. It also means that the recovery is tepid at best. Despite the overall negative feeling, one has to remember that almost half of economists were predicting that we were slipping into a double dip recession just a few months ago. Now we realize that the double dip is less of a risk and we are moving forward. The economy's growth rate of 2.5% and an average of around 125,000 jobs added each month are indicative of an economy getting stronger but nowhere strong enough to make up for jobs we have lost. We need at least 100,000 more jobs added every month to wake up the housing sector. So it is not what happened last month that is important. It is where we go from here. If Europe could actually finish their debt plan and move that focus from the front pages for a few months, that would help. Also Congress coming up with a debt plan will help. Remember the budget? Well, the time is getting short for a solution to this issue as the deadline for an agreement is again coming up later this month. Wouldn't it be nice if the headlines were not marred with our representatives bickering during the month of November?

Even before the President released his jobs proposal, CNN/Money was out with an article which basically said that the package will not work because it is not large enough -- “The kick to growth is going to be pretty small. It will add substantially less than 1% to GDP growth in 2012,” said Nigel Gault, the chief U.S. economist at IHS Global Insight. What the article misses is the most important point -- Confidence. Companies have plenty of money to hire. But without consumer and business confidence, it is not likely to happen. We don’t need a huge package for consumers and business to feel better. They need to know that the government is helping in some way.

As we keep pointing out, the economic numbers have not been that dismal. The Federal Reserve Board's recent Beige Book release confirmed that the economy is growing moderately with housing still the lagging sector. Consumer spending rose in July and the service sector continued to expand last month. These are important economic components. With a more solid foundation to the economy as opposed to two years ago, it is a much shorter step from where we are to recovery. However, companies will not hire and consumers won't purchase homes without confidence. The only danger in proposing this package is that it gets bogged down in political haggling, which would make consumers and businesses even less confident. So we say, make it small, but pass it quickly and confidently. Confidence is what we need.

Just when things could be quieting down, the August jobs report is just around the corner. This number is always very significant, but it becomes even more important this month because it represents data mid-way through the third quarter. With many economists counting on a rebound for the economy in the second half of the year, this is a reading which is solidly within the year's second half. The number is also very important because it comes right after a period in which the markets are experiencing major turbulence. If the number is poor, does this mean the markets have already taken this disappointment into account? If the number is strong, could the markets rally? It would not be 2011 if we did not have an intervening event that could obscure the data. This month we had the strike at Verizon which could contribute to weakness, even though tens of thousands of workers have returned to work. Just in time to keep the phones running as hurricane Irene strikes.

The events in Libya also bear watching. It is not just potential ramping up of oil production. It is said that much of Libya's production may take years to restart. It is the fact that Libya represents another domino. Not only will the world be watching as the country struggles to unite under a Democracy, the world will be watching the next domino, which right now is Syria. In the long run, democracies and capitalism in this region have the potential to provide more stability. In the short-run, there is the potential for more uncertainty with regard to oil production and threats from extremists. Here is the good news. As Libyan rebels gained control of the country, our focus actually left the European Debt Crisis for a few days.

There are rumors that half of Wall Street had to visit emergency rooms this past week. They were all suffering from motion sickness. And what a wild ride it was. From a budget deal to a credit downgrade to a Federal Reserve Meeting all in one motion. Really, no one knows how this will all play out, but we do know this -- Stocks have undergone a significant correction and the bottom line is that we finally have a reaction to the slowdown in the economy. The pieces are falling into place with extraordinarily low rates and oil prices down 20% from their recent peak. We also know that everyone is afraid to blink because all of these numbers could reverse themselves in a few hours due to extreme volatility. The Fed statement regarding rates and the economy was also extraordinary. Typically the Fed does not give a hint with regard to the future direction of rates, at least beyond a month or two. Now they are all but guaranteeing low rates for two years and will consider future actions to bolster the economy.

The Fed definitely acknowledged that the economy was growing too slowly and that there is more risk to the downside at the present time. One factor after another has affected the economy's performance, from earthquakes to floods to the European debt crisis. Now budget cuts stand to take some more air out of the recovery. Many are asking, are we heading for another financial meltdown? "Not likely" say most analysts. This is not 2008. The economy is growing, albeit slowly. We added just 100,000 jobs last month, but it was better than the hundreds of thousands we were losing monthly a few years ago. Retail sales grew by 0.5% in July which means that consumers are spending. Companies, including many banks, are flush with cash and have the ability to hire as soon as it is evident that the economy will not fall back into recession. Finally, it should also be noted that the Fed controls short-term rates directly and long-term rates indirectly. Even with the Fed holding short-term rates low, if the economy does start to heat up, long-term borrowing costs will go up regardless of the Fed's efforts. This is a great time to refinance, purchase a house or a car and help get the economy rolling.