Skip to: Content
Skip to: Site Navigation
Skip to: Search


Focus

Debt ceiling: With debate on hold, where is US economy headed now?

With the debt ceiling's threat no longer imminent, the US economy appears to be stuck in neutral, waiting to be pushed forward or back. Here are head winds and tail winds competing for influence.

(Page 3 of 4)



No one knows what actually happened to the money over the past two years, Williams says. He thinks low-income wage earners "spent it before they got it." Middle-income earners may have used some of it to pay bills. "I'm sure at the top end it was all going to the bank," he says.

Skip to next paragraph

The way John Canally, chief economist at LPL Financial, views the increase in the payroll tax: It absorbs a 1 to 2 percent pay raise.

"It will be almost all taken away since this tax went up," says Mr. Canally.

TAIL WINDS

A rebounding housing market

The housing market will continue to help the US economy grow as developers try to meet a rising demand for apartments and to a lesser extent new homes.

In the coming year, construction of single-family homes will rise by 20 percent and multifamily units, mostly apartments, will increase by 37 percent, estimates IHS Global Insight, a Lexington, Mass., economic consulting firm.

In fact, new housing construction will contribute 20 percent of America's GDP growth in 2013, estimates IHS.

In a normal year, most of the construction revolves around single-family homes. But developers are finding it harder to sell them because buyers are trying to rebuild their credit ratings. "They are building the homes but people aren't buying them," says economist Patrick Newport, who follows housing for IHS.

This has forced developers to shift to apartments, where rents are rising.

"There were 4 million homes lost to foreclosure [since the 2007 housing crash], and a lot of those families became renters," says Jed Kolko, chief economist at Trulia, a San Francisco-based online real estate marketplace.

In fact, spending on multifamily housing has been dynamic – rising 46 percent from November 2011 to November 2012, compared with 7.7 percent for all of construction.

At the same time, sales and prices of existing homes improved at the end of 2012. Trulia estimates prices were up 5.1 percent nationally last year. As real estate prices rise, many economists believe there is a wealth effect that helps the economy grow as Americans feel more confident about making large purchases.

Despite the improvement in housing, there are concerns about foreclosures that are still in the pipeline and how difficult it is for individuals without high credit scores to obtain mortgages.

Businesses are flush

Business is expected to spend some of its cash on new factories and the equipment to go in them.

Energy companies are adding pipelines, aerospace companies are expanding production to keep up with demand, and medical centers are gearing up for the implementation of the Affordable Care Act, when millions more Americans get health-care coverage.

An example of the spending boom: In mid-January GlobalFoundries announced it would spend $2 billion on a new research-and-development center in Saratoga County, N.Y. The R&D facility will create 1,000 jobs.

At the same time, many other companies are opening up their wallets because they deferred investment during the recession.

"They just repaired equipment or postponed replacement," says Meckstroth of MAPI. "Companies are very profitable now, and interest rates are very low, so we have prime conditions for a capital spending boom.

"The capital spending rate could be much faster if we didn't have the uncertainty with the fiscal cliff and the debt ceiling," he says.

A feel-good market?

The stock market could potentially help the economy if it continues higher.

Last year, the S&P 500 index gained 16 percent, including dividends. That added $1.375 trillion to stock portfolios.

Permissions

  • Weekly review of global news and ideas
  • Balanced, insightful and trustworthy
  • Subscribe in print or digital

Special Offer

 

Doing Good

 

What happens when ordinary people decide to pay it forward? Extraordinary change...

Endeavor Global, cofounded by Linda Rottenberg (here at the nonprofit’s headquarters in New York), helps entrepreneurs in emerging markets.

Linda Rottenberg helps people pursue dreams – and create thousands of jobs

She's chief executive of Endeavor Global, a nonprofit group that gives a leg up to budding entrepreneurs.

 
 
Become a fan! Follow us! Google+ YouTube See our feeds!