Fiscal cliff deal no recipe for robust economic recovery in the US

So why don't economists foresee stronger growth and hiring for the United States in 2013?

By delaying painful decisions on spending cuts, the deal passed at the last minute by Congress this week assures more confrontation and uncertainty, especially because lawmakers must reach agreement within a few months to raise the government's US$16.4 trillion debt limit so the U.S. can pay its bills. Many businesses are likely to remain wary of expanding or hiring until then.

One hopeful consensus: If all the budgetary uncertainty can be resolved within the next few months, economists expect growth to pick up in the second half of 2013.

“We are in a better place than we were a couple of days ago,” Chad Moutray, chief economist for the National Association of Manufacturers, said a day after Congress sent President Barack Obama legislation to avoid sharp income tax increases and government spending cuts. But “we really haven't dealt with the debt ceiling or tax reform or entitlement spending.”

The Jan. 1 fiscal cliff deadline was meant to force Congress and the Obama administration to finally face those issues and address chronic fiscal spending. Instead, they put off most of those questions and face more showdowns soon.

Five years after the Great Recession began, the U.S. economy is still struggling to accelerate. Many economists think it will grow a meager 2 percent or less this year, down from 2.2 percent in 2012. The unemployment rate remains a high 7.7 percent. Few expect it to drop much this year.

Yet in some ways, the economy has been building strength. Corporations have cut costs and have amassed a near-record US$1.7 trillion in cash. Home sales and prices have been rising consistently, along with construction. Hiring gains have been modest but steady.

Bernard Baumohl, chief global economist for the Economic Outlook Group, thinks the lack of finality in the budget fight is slowing an otherwise fundamentally sound economy.

The economy might be growing at a 3-percent annual rate if not for the threat of sudden and severe spending cuts and tax increases, along with the haziness surrounding the budget standoff, said Ethan Harris, co-director of global economics at Bank of America Merrill Lynch.

Congress' deal also postpones decisions on more than US$100 billion in spending cuts for military and domestic programs, including the Medicare health care program and Social Security pension program. In doing so, it sets up a much bigger showdown over raising the government's borrowing limit. Republicans will likely demand deep spending cuts as the price of raising the debt limit. A similar standoff in 2011 brought the government to the brink of default and led Standard & Poor's to yank its top AAA rating on long-term U.S. debt.

Here's how key parts of the economy are shaping up for 2013:

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