As we jump from one government created budgetary crisis to another we seem to be in a perpetual state of “What will happen if . . ?” At this point it appears that the “sequester” will take effect, at least for now. It is hard to imagine that congress (or the public) would have the stomach to allow continued cuts across the board every year over the next decade. Since this law has been on the books for more than a year, companies have been preparing for the possibility of cutbacks. One reason the GDP was slightly negative in the fourth quarter was a decrease of private inventory investment. All of this uncertainty puts the economy on track for only sluggish 2.2% growth in 2013.
The “sequester” and the return to full payroll tax deductions are the negative side of economic growth. On the positive side, the housing market is recovering, with more starts, rising prices, and a shorter time for houses on the market. Employment is also inching up, although the “sequester” will slow the progress. A few areas of employment have returned to 2007 levels. All have grown over the last year except for federal, state, and local government employment which has been dropping since 2009.
If you would like to see the full report with supporting graphs, log in to the MTI Members Only Area and click on Economic Forecasts – Feb. 2013 in the featured resources box.