I’ve been cautiously watching this. But TPM Reader IL points to increasing signs that — despite the self-inflicted fiscal cliff damage — the economy is moving toward a real take off. Maybe even enough to absorb the entirely counter-productive sequester damage …
At the end of 2012 the consensus among many economic forecasters was that the U.S. economy would experience sub-trend growth due to fiscal tightening from the expiration of the Bush tax cuts and any spending associated cuts from a deal on the sequester. Flat fourth quarter GDP numbers appeared to confirm this view. Goldman Sachs referred to this headwind as a “hump” and that the U.S. economy would not move “over the hump” until late 2013 which would then lead to above-trend growth in 2014.
There was little reason to dispute this view especially given the hit that consumer spending would have with the expiration of the payroll tax cut. However, as economic data began to trickle in during the first quarter the hit to consumption had yet to materialize. There was reason to be cautious because a month’s data does not make a trend but then data from February (Manufacturing ISM, monthly auto sales, retail sales, jobless claims, non-farm payrolls) came in above expectations and painted an overall picture that the economy may have moved past the “hump.” Estimates for first quarter GDP have now been raised from roughly 2% to 2.9%.
Just as the economy appears to be gearing toward above trend growth another self-inflicted headwind from Washington, the Sequester, will begin to be felt in the 2nd and 3rd quarter of this year. There is no economic justification for allowing this policy to be implemented. More importantly, there is no budgetary justification for the Sequester given the latest estimates from the CBO that show the ratio of debt-to-GDP has stabilized at 75% and will stay at that level for the next decade. The Sequester will have little to no impact on the deficit in the long run but in the short run it will have an obvious impact on growth at a time when the US economy has started to kick into a higher gear.
I guess a new question is whether the economy may now be strong enough to overcome the GOP push to kill it with austerity.
Josh Marshall is editor and publisher of TalkingPointsMemo.com.