(Bloomberg News) In his six years as Federal Reserve Chairman, Ben S. Bernanke has sometimes proved too sanguine about the U.S. economy, declaring the impact of bad subprime mortgages on the financial markets "contained" in 2007 and being too optimistic about growth last year. Now that employment is accelerating, economists wonder if the central bank again will prove to be mistaken, this time by being pessimistic about the outlook.
An improving job market, stepped-up U.S. bank lending and resurgent financial markets all could combine to boost demand. The jobless rate fell to the lowest level in three years in January, while consumer credit racked up its biggest two-month gain in a decade at the end of 2011. The stock market had its best January in 15 years, with the Standard & Poor's 500 Index now up 6.8 percent since the start of 2012.
"The turn in the economy right now is very positive," said Allen Sinai, president of Decision Economics Inc. in New York, who forecasts growth of 2.5 percent to 3 percent this year and a year-end jobless rate of 7.7 percent, compared with 8.3 percent last month. "We're going to have a better year than a lot of people thought."
Stock prices will continue to rise, as the strengthening economy boosts confidence among companies, consumers and investors that expansion is sustainable, said James Paulsen, who helps oversee about $333 billion as chief investment strategist in Minneapolis for Wells Capital Management.
Paulsen, who forecasts economic growth of 3 percent to 3.25 percent in 2012, predicts the S&P 500 will climb to 1,500 sometime this year, compared with 1,342.64 at 4 p.m. in New York on Feb. 10.
"We believe markets are still pricing in a more negative economic backdrop than what we are predicting," Bob Doll, chief equity strategist at BlackRock Inc., the world's biggest asset manager, wrote in a Feb. 6 commentary. That suggests stocks "have further room to run."
Faster growth also would benefit President Barack Obama in his bid to win a second four-year term in November. Former Massachusetts Governor Mitt Romney, the most-likely Republican presidential nominee, has attacked Obama for his handling of the economy, charging that his policies have held back the recovery.
Texas Instruments Inc., the second-largest U.S. chipmaker, is among companies rebuilding inventories and taking on workers ahead of an anticipated increase in orders.
"You see us already starting some level of hiring in the manufacturing operations," Ron Slaymaker, vice president at the Dallas-based company, said at a Feb. 7 conference. "When demand returns, we'll be able to start factories up pretty quickly."
Investors More Confident