Calculated Risk puts this argument today:
Fiscal austerity probably subtracted 1.5% to 2.0% from GDP growth in 2013, and the foolish government shutdown probably subtracted a little more.
But even with contractionary fiscal policy, it looks like the US economy will grow in the 2% range this year. Ex-austerity (and ex-shutdown), we’d probably be looking at a decent year – maybe this would have been the best year since Clinton was President!
Right now it looks like 2014 will be a better than 2013 for a number of reasons:
1) The housing recovery should continue.
2) Household balance sheets are in much better shape. See: NY Fed: Household Debt declined in Q2 as Deleveraging Continues and Fed: Household Debt Service Ratio near lowest level in 30+ years
3) State and local government austerity is over (in the aggregate) [updated link].
4) There will be less Federal austerity in 2014 (hopefully the sequester cuts will be minimized). And a government shutdown is unlikely. …5) And demographics are favorable going forward.
Here is some more analysis on 2014:
From Goldman Sachs economists Sven Jari Stehn and Kris Dawsey:
Looking beyond Q4, we continue to expect a meaningful acceleration of GDP growth―to 3% in 2014Q1 and 3.5% for the remainder of the year―as the economy moves over the “hump” of fiscal contraction.
From Merrill Lynch economists:
Getting the exact timing of the acceleration in growth is tough, but the case for better growth next year is strong. The economy has healed significantly since the 2008-9 crisis. In particular, the government, households, businesses and banks have gone a long way toward fixing their balance sheets, allowing them to slowly shift their focus from balance sheet repair to expansion.
…
We expect GDP growth to exceed 3% in the back half of next year as the federal fiscal drag drops from ~1.5pp in 2013 to ~0.5pp in 2014.Right now it looks like 2014 will be a solid year.
My own view is less positive but still solid enough. Spiking interest rates are already slowing housing and if the Fed tapers the recovery in prices will stall, and income growth as well consumer spending ease. That will also slow the new homes recovery.
So long as there is no taper then it’ all good!
