Popular Economics Weekly

Next year could start with a bang. U.S. third quarter Gross Domestic Product expanded at 4.1 percent, revised up from 3.6 percent, with consumer spending a main driver of growth. This has to mean consumers are feeling prosperous again, and if employment continues to rise as predicted by the Fed, and others, so will consumers’ incomes and spending.

Retail sales are also strong with the holidays looking good.  Overall retail sales in November jumped 0.7 percent, following a rise of 0.6 percent the month before (originally up 0.4 percent).  Autos were a big part of the November boost, gaining 1.8 percent after a 1.1 percent increase in October, so that annual sales are approaching 5 percent, and 6 percent is closer to a normal sales rate, and full employment.

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Graph: Econoday

The Kansas Federal Reserve Bank just released a study that says single family starts could increase by 150 percent from 2012 to their peak in 2021 (Chart 1). The annual level of starts at this peak is about the same as in 2002, one year into the single-family construction boom. Single-family construction is then projected to fall over the subsequent decade.

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Graph: Calculated Risk

Demand in particular was raised in the GDP report, and increasing demand for goods and services is what induces businesses and economies to grow. Final sales of domestic product were revised up to 2.5 percent, compared to the second estimate of 1.9 percent and 2.1 percent in the second quarter. Final sales to domestic purchasers (which exclude net exports) were bumped up to 2.3 percent versus the second estimate of 1.8 percent and 2.1 percent in the second quarter.

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Graph: Econoday

The best news of all was the bipartisan budget agreement that put off any talk of indiscriminate sequester cuts for the next 2 years. It will add back a total of $85 billion to government spending and will give an additional boost to growth in 2014. It has been the decline in government investments and employment in particular that have been the largest roadblock to increased growth.

Under the terms of the deal, spending for the Pentagon and other federal agencies would be set at $1.012 trillion for fiscal 2014, said the Washington Post, midway between the $1.058 trillion sought by Democrats and the $967 billion championed by Republicans. The Pentagon would get a $2 billion increase over last year, while domestic agencies would get a $22 billion bump, clearing space for administration priorities such as fresh investments in education and infrastructure.

Harlan Green © 2013

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