Our economy is a bit like a person on a diet. He loses weight a little bit at a time, and when you him them every day, you hardly notice the gradual change. But if you don’t see that person for a few months and suddenly run into him, you’re shocked by the transformation.

That’s what’s happening with the recovery. There have been gradual improvements that hardly seem noteworthy, but when you look at them on a larger scale, you can see a significant shift.

Take GDP, for example. It doesn’t feel like 2011 was a banner year for economic growth, but when you break down the final numbers, you’ll see the improvement:

• In the first quarter of 2011, GDP was a dismal 0.4%.
• In the second quarter, things perked up to 1.3%.
• In the third quarter, the economy improved to 1.8%.
• And when all is said and done, the fourth-quarter figures will come in at around 3%.

This has been the story with a number of economic reports, and the one that really has me excited is jobs.

Just this week, ADP reported that private payrolls rose a whopping 325,000 in December — far above the consensus of just 178,000. In fact, this was the best reading since the survey began in January 2001.

The biggest gains here were in small- to midsize firms, which is great news. Jobs created by private, smaller employers are the best estimate for the health of an economy, and this number is an extraordinarily bullish note to begin 2012. And I don’t need to tell you what great news this is for my emerging growth stocks. I focus on small-cap companies because with every small improvement in the economy, they can turn it into huge growth for their business. They can hire and expand quickly, and this is why they offer investors the biggest profit potential at this stage of the recovery.

Now, we still have a way to go when it comes to job growth. The improvements need to keep coming, but I expect they will, and by the time we close out 2012 we’ll see unemployment in the 8%-and-under range — impressive and attainable from the current 8.5% level.

To achieve this goal, we will need a few other economic indicators to perk up. Let’s discuss those now:

The Consumer and Market Predictions

Job growth is going to have a significant impact on the U.S. consumer. With more hiring and better job security, wallets will open and people will feel better about making purchases. With just the small improvements listed above, consumer confidence is on the rise. Recently, the Conference Board announced that consumer confidence surged to 64.5 in December, up from a revised 52.2 in November and much higher than economists’ consensus expectation of 60. After two months of very considerable gains — in October the index was at just 40.9 — we are back at levels last seen in spring of 2011. Clearly, consumers ended the year in a much more upbeat mood.

And we’re going to continue to see sentiment and spending improve as a wonderful snowball effect takes place. When jobs improve consumers get happy. That causes people to spend, which causes GDP to rise. This then creates jobs and the cycle continues. The bump in consumer spending (forecast December retail sales were just revised to +4.5% — up from +4%) already is leading economists to revise their estimates for fourth-quarter GDP growth higher. Now, we’re looking at 3% growth for the fourth quarter.

With these powerful recovery tailwinds at our backs, I’m expecting that 2012 will be profitable for the market and for my emerging growth stocks

. In fact, as investors grow increasingly confident in the U.S. economic recovery, I predict that the S&P 500 will close 2012 above 1,420 and the Dow will climb above 14,200. This would be a 15% move forward from current levels.

My emerging growth stocks will do much better as they are nimbly navigating the economic recovery and are turning each good report into significant sales and earnings growth.

But I have to warn you, this strong market prediction isn’t going to mean a heyday for all stocks. In fact, the reality will be the exact opposite.