Getting comfortable with living on the edge
By Alan Wheatley, ReutersLONDON--Just as you learn to put up with a nagging toothache, this week is expected to provide fresh evidence that the U.S. economy is getting used to life on the edge of the fiscal cliff.
January 15, 2013, 12:09 am TWN
Of course, putting off that trip to the dentist is not necessarily wise. The longer Washington delays, the more painful it will become to narrow its gaping budget deficit.
But surveys of U.S. consumer confidence in January and of house builder sentiment in December are likely to show resilience, buttressing the argument of equity bulls that Wall Street's firm start to the year is more than a relief rally or a desperate search for higher returns on investment.
Bluford Puttnam, chief economist of CME Group, said the U.S. economy had managed to grow almost 2 percent last year and create about 1.8 million jobs despite stagnation in Europe, a slowdown in China and the deadlocked budget talks.
“So I see a lot of momentum going into 2013,” Puttnam said. “If we can get past this fiscal cliff, the economy is poised to have a much more confident year.”
Despite fiscal tightening, he said growth could reach 2.5 percent to 3 percent.
Puttnam said the next rounds in the budget battle later this quarter would again be bitterly fought and the resolution would again satisfy no one. But, as with the showdown at the end of 2012, the economy would quickly move on.
“There is a one-in-ten chance that the government may even shut down for a week. It's just going to be ugly. And then it will be over. There will be some kind of compromise, and by April it will fade quickly into the background,” he said.
U.S. retail sales are likely to have increased only 0.2 percent in December, dampened by the budget worries, according to economists polled by Reuters.
But a pair of regional Federal Reserve surveys and the monthly Reuters/University of Michigan consumer poll are projected to improve, while housing starts, new building permits and builders' confidence should all show that the housing recovery stands on firm foundations.
“That's what's really encouraging consumers to feel that the economy is getting better and that the momentum is broadly positive,” said Jerry Webman, chief economist at OppenheimerFunds in New York.
While the phrase fiscal cliff used by U.S. Federal Reserve chief Ben Bernanke conjured up an image of an immediate plunge at the start of this year, in truth any austerity was always likely to take effect on the economy gradually.
Bank of America Merrill Lynch describes the challenges the United States faces in coming months rather as three fiscal gorges it must leap over.