The U.S. economy has grown for five consecutive quarters since the official end of its recession in June 2009, but high unemployment, a weak housing market and the soaring deficit remain key economic challenges in the coming year.

In 2011, the entire economic agenda of President Barack Obama's administration is to stimulate jobs and growth against three major uncertainties: the implementation of recent legislations, the Federal Reserve's super loosening monetary policy, and the changing political ecosystem in Washington after the Congressional midterm election.

BACK TO GROWTH TRACK

With massive government stimulus spending and unprecedented monetary easing, the U.S. economy returned to the track of growth along with its cyclical recovery.

In the spring of 2010, there was optimism about the U.S. economy as it rebounded quite fast from the worst recession after the Great Depression. But the recovery turned feeble in the summer before returning to a modest increase in the second half of the year.

According to the Commerce Department, the real GDP (gross domestic product) -- the broadest measure of the overall economy -- grew at a pace of 2.5 percent in the third quarter of 2010, compared with 3.7 percent and 1.7 percent in the previous two quarters.

Personal consumption, which accounts for about 70 percent of the U.S. economy, became the major engine of growth. This was different from the inventory adjustment-driven recovery in the second half of 2009.

In early November, Dow Jones 30 Industrial Average Index of the New York Stock Exchange (NYSE) returned to pre-crisis levels. General Motors, rescued by the government in 2009, resumed its listing on the NYSE, which was seen as a symbol of recovery in the real economy.

Figures also showed that trade increased in 2010, with import reaching 173.1 billion U.S. dollars in the January-September period and export rising to 135.2 billion dollars. The 18-percent export hike in the first three quarters was a boost to Obama's export goal of doubling export in five years.

Federal deficit, though still high, dropped to 1.29 trillion dollars in the 2010 fiscal year which ended in September, compared with the record high of 1.42 trillion dollars in the previous fiscal year.

The International Monetary Fund (IMF) said in its latest World Economic Outlook that the U.S. economy could grow 2.6 percent in 2010.

KEY THREATS REMAIN

Although the U.S. economy has seen continuous growth, some deeply-rooted problems such as high unemployment, the housing trap and debt issues are still threatening a stable recovery.

Some economists call the current economic situation a "jobless recovery," due to the near-double-digit unemployment rate.

According to a Fed's report in November, the unemployment rate will be 9.5 to 9.7 percent in 2010, and not enough new jobs could be created unless growth reaches at least 3.5 percent.

Meanwhile, the housing market, which was considered as the breeding ground of the financial crisis, remained a drag to overall recovery.

U.S. existing-home sales declined by 2.2 percent in October compared with the previous month, or 25.9 percent on a year-on-year basis.

Freddie Mac and Fannie Mae, the two government-supported mortgage giants, were still begging for taxpayers' help, and foreclosure cases were expected to reach 2.5 million this year, according to Realtrack.com, a leading housing industry research company.

The debt issue is not a problem with easy solutions despite the U.S. government's and the Congress's pledge to cut the mounting federal deficit.

The sovereign debt crises in some euro countries have caused a global panic. Data from the Congress budget office showed that the accumulated U.S. federal debt stood at over 12.3 trillion dollars, and government debt to GDP ratio was about 84 percent.

"Our fiscal and economic problems have been decades in the making -- a bad situation made much worse over the past two years. It will require years to dig ourselves out." said Paul Ryan, top Republican in the House Budget Committee.

GROWTH AGENDA IN 2011

The top risk of the U.S. economy, as U.S. Treasury Secretary Timothy Geithner has said, is that "it grows not fast enough."

The focus of the economic policy in 2011 is to create jobs and stimulate growth. Some of the major issues the Obama administration is expected to address include tax reform, deficit control, energy, trade, financial legislation implementation and housing finance.

Both the Senate and the House of Representatives have in December passed a measure to extend Bush-era tax cuts for two more years as a compromise between Obama and Congressional Republicans.

The president has said earlier that he was pursuing to provide permanent tax cut for the middle-class Americans with yearly household income below 250,000 dollars, and planning to increase tax on the rich. But the 858-billion-dollar package will affect Americans of all income levels and is expected to largely affect the tax policy in 2011.

The tax cuts, introduced by former President George W. Bush, were to expire on Jan. 1, 2011.

In efforts to control the country's deficit, the new Congress will shift attention to the deficit and the fiscal state of the government's books.

Obama's deficit reduction commission recently posted a report, vowing to trim the country's deficit. Looking beyond the budget, there is bipartisan support for making the tax code more efficient and effective in stimulating economic growth.

On energy policy, Obama proposed finding common ground with the Republicans, developing domestic natural gas resources and encouraging electric cars.

On trade, Obama said he was "pro-free trade, as long as it is fair." While he has made positive statements about the World Trade Organization's Doha Round of talks and the pending Free Trade Agreements (FTA) with South Korea, Colombia and Panama, he has not taken any meaningful steps to move these measures forward.

"The U.S. should signal to the world that it is ready to resume leadership on trade." said Kevin Warsh, a member of the Fed's Board of Governors.

In the coming year, the U.S. government and Congress will spend much time formulating specific rules under the financial act passed in June 2010. According to a report by Morgan Stanley Inc., the new Congress will pursue "technical corrections" to the act.

Meanwhile, efforts are also needed for housing finance reform. The Obama administration has indicated that it would release a comprehensive proposal for reforming Freddie Mac and Fannie Mae by January 2011. A final solution may not materialize until well into 2011, if not later.

According to the IMF's forecast, the U.S. economy will grow 2.3 percent in 2011, lower than the Fed's expectation of 3.0 to 3.6 percent.

THREE UNCERTAINTIES

Analysts say at least three uncertainties overshadow the U.S. recovery in 2011.

First, some key legislations, including the financial and healthcare acts, may bring uncertainties to the economy and hurt business sentiment.

"Uncertainty is the enemy of business investment," U.S. Chamber of Commerce President and CEO Thomas Donohue said.

A Wall Street Journal article argued that "you cannot understand the way any business functions and then pass a 2,000-page law to regulate the health economy and then a 2,000 page law to re-regulate the entire financial economy. You cannot -- in one year -- load 4,000 pages of limitless uncertainty on the back of the economy and expect it to grow without Washington life support."

The other major uncertainty stems from the Fed's monetary policy. The central bank announced on Nov. 3 that it would implement its second round of quantitative easing policy, meaning it would purchase 600 billion dollars of long-term government bonds to stimulate recovery and create jobs.

This open-ended policy may be strengthened if the Fed believes that the effect of the policy is not satisfactory.

Moreover, as observers put it, the new faces in the Congress will change the political atmosphere in Washington to a certain extent.

The U.S. economy is expected to keep growing in 2011. But as Obama once noted, "there is still a long way to go" before securing a stronger, more balanced and sustainable recovery.

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