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Friday Economic Snapshot: Baby steps toward budget deal

Congress-Rotunda-Munnaf-Joarder

Photo Credit: Munnaf Joarder, Flickr

By Tom Kaiser
December 13, 2013
Filed under Top Stories

It’s a different world than it was at the beginning of 2013, and things have generally become more stable, less fraught with risk and more optimistic. As we begin the stream of end-of-year lists and predictions, many economists expect the United States to help propel the world toward strong, sustainable economic growth in 2014.

While anything is possible — and plenty of pitfalls and speed bumps still lurk — most prognosticators say chances are better than not that the next year will finally see the kind of accelerated growth we’ve been hoping for with the better part of a decade.

Zooming in to this week, we’ve seen the emergence of a congressional budget deal, declarations that government-led austerity measures are over, unemployment bumping higher, a housing recovery that looks ever-more durable and (seemingly always disconnected from reality) a Dow Jones Industrial Average that shed several hundred points from its record closes above 16,000

Budget Deal

While it’s being criticized as doing too little, being too conservative and also as being too liberal, the congressional budget deal that’s shaping up would slightly increase spending to reduce the drag of the sequester, which affected defense and non-defense discretionary spending. It would do this without increasing taxes or cutting entitlement programs. Beneficiaries look to be medical research, military training and the Head Start program.

No aspect of this proposed deal would impact the next approaching debt ceiling, set to arrive shortly after January. It’s an agreement, however small, and that’s a reason for optimism as we depart 2013.

Housing

Home prices across much of the country went on a tear over the last 12 months, zooming up by double digits in most markets. This trend has caused many to fear another housing bubble, but then things began to slow at the end of summer. What’s going on?

Many housing watchers feel this recent deceleration is a good thing, and forecast that demand for housing will increase as economic growth picks up in the coming months. If that’s the case, and housing starts creep up at a steady pace, most sectors of the American economy will benefit – autos, transport, raw materials and labor.

Unemployment

The previous unemployment data was a shocker, and enough to nudge the unemployment rate down to a healthy-sounding 7 percent. This week’s figures show seasonally adjusted initial claims at 368,000, a jump of 68,000 from the previous week’s 300K.

This puts the four-week moving average at 328,750, which is an increase of 6,000 from last week’s 322,750. Economic watcher Bill McBride (CalculatedRiskBlog.com) says that claims are often volatile during the holidays, but that recent trends still suggest an improving labor market.

Things are looking good. We still have structural problems —the lack of income growth, general income inequality and few quality jobs entering the labor force —but 2014 could be a year of normalized growth. Let’s hope for he best.

 

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