With tax rates returning to more normal levels from the rollback of Bush era tax cuts, and Republicans giving up on denying debt ceiling increases until April in order to force government spending cuts, there seem to be very few domestic factors to hold back more robust growth in 2013.
The "No Budget, No Pay-Act" bill could also open a path to a longer term increase: It would require the House and Senate to each agree by April 15 to a budget resolution for fiscal year 2014. And such a measure, which is intended to set spending and revenue levels for the next five to ten years, might include debt ceiling increases, say congressional staffers.
We are already seeing signs higher growth is happening -- maybe even approaching 3 percent GDP growth in 2013. The Conference Board's Index of Leading Economic Indicators (LEI) just jumped 0.5 percent in December, industrial production is rising again, and retail sales are surging. This and increased housing production are sure to increase hiring. Weekly initial jobless claims have already fallen to 330,000, close to the longer term average.
The drop in jobless claims was the biggest factor in the LEI increase. Conference Board economist Ken Goldstein said: "The latest data suggest that a pickup in domestic growth is now more likely, compared to a few months ago. Housing, which has long been a drag, has turned into a positive for growth, and will help improve consumer balance sheets and strengthen consumption. However, for growth to gain more traction we also need to see better performance on new orders and an acceleration in capital spending."
Industrial production was surprisingly strong, with the manufacturing component up 0.8 percent, following an increase of 1.3 percent the prior month. Motor vehicle production was strong with a 2.6 percent rise after a 5.8 percent boost in November, as were other sectors. Excluding motor vehicles, manufacturing output increased 0.7 percent after a 0.9 percent rebound in November.
And retail sales are increasing 5 percent per year, almost back to early 2000 levels. Gains were led by furniture and home furnishings, food services and drinking places, and health and personal care. A decline was seen in electronics and appliance stores. Overall consumer spending was moderately healthy in December and likely will lead many economists to bump up their fourth quarter GDP forecast (which had been nudged down last week from a negative international trade report).
More housing construction in particular will boost growth this year, as it leads directly to new construction jobs, as well as boosts the financial sector. The jump in December housing starts was led by the multifamily component although single-family starts also were up notably. Multifamily starts jumped 20.3 percent after a 6.3 percent decline in November. The single-family component gained 8.1 percent in December after decreasing 3.2 percent the prior month.
The lesson seems to be that for all the political quarreling, there are fundamental factors driving growth. Increased hiring is driving up the demand for goods and services. Record low interest rates are boosting housing and stimulating exports due to the weaker dollar. That means to this writer, at least, that our government is coming out of decades-long intensive care. It is coming back to life, in other words, and will now aid, rather than remain the obstacle to stronger economic growth.
Harlan Green © 2013