5 Consumer Challenges to Expect in 2012

Currently, many experts seem are on the fence about whether or not the economy is truly on the mend. Consumers are the true driving force in the domestic economy, and Americans still play a large role in global financial developments as well. Pay attention to the following key trends as the new year dawns to get a sense of where your economic risks and opportunities sit.

Persistent Unemployment

The scarcity of jobs is the number one challenge consumers and the broader economy face in 2012. This element has dominated headlines since the global financial crisis began in 2008. Going forward, certain sectors of the job market have improved, but major challenges persist. In 2012, most observers believe that business will feel more confident about hiring, opening the way to jobs in many industries.

Yet, structural unemployment remains a harsh obstacle to overcome. Many workers have been permanently displaced by changes in technology coupled with a sour economic climate. No current political or societal solution has emerged to overturn this problem, and lack of jobs could remain a major lag on consumer spending and overall economic growth in 2012.

The Price of Gas

Throughout 2011, one of the main financial stories was the upward spike in oil and gas prices. The rapid increase in gas prices earlier in the year threatened to overturn inklings of economic progress, but high prices slowed and stabilized later in the year. 2012 is expected to be much the same, with persistently higher prices squeezing strained consumers. A black swan event like greater turmoil in the Middle East could send oil prices skyrocketing, which may be a terrible setback to the world economy.

Inflation Rates

Much like rising fuel costs, inflation in other areas threatens to slow consumer confidence in the gradual recovery. 2011 saw more inflation than the record-low levels in previous years, and it looks set to increase again in 2012. Unfortunately, inflation is highest in crucial industries such as education and healthcare, both essential sectors where heightened expenses may slow consumer spending elsewhere.

Local Debt Issues

Ever since the recession began, many states and cities have found themselves strapped for cash. They have responded by cutting pay, jobs, and benefits for their workers. This directly affects a large number of consumers who are dependent upon local governments for their bread and butter. Unless drastic moves are taken to save public pensions and stabilize job losses, consumers in government may get a second dangerous blow in 2012.

Housing Turmoil

The housing market played a major role in causing the U.S. economy's downward spiral, and it's going to play just as big a role in determining the economic outlook for 2012. Instability in other sectors (like jobs) means that consumers are reluctant to purchase houses in large numbers, a key move that could jump start the rest of the economy. On the other hand, record-low mortgage rates could help consumers in a stable position make this large purchase, thwarting a major roadblock on the road to recovery.

Understanding these five key challenges is vital for piecing together a portrait of what 2012 holds. As wise investors and consumers already know, predicting where the economy is heading means mitigating risks and increasing rewards in the new year.