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Economy showing strength

Outlook brightens as spending cuts loom on horizon

– Even with automatic spending cuts looming, the outlook for the U.S. economy brightened a bit Tuesday after reports showed that Americans are more confident and are buying more new homes.

Home prices are also rising steadily, and banks are lending more. Such improvements suggest that the economy is resilient enough to withstand the deep government cuts that will kick in Friday.

That’s especially encouraging because uncertainty over the federal budget could persist for months.

“The stars are lining up for stronger private sector growth this year,” said Craig Alexander, chief economist at TD Bank.

The upbeat economic news contributed to a rally on Wall Street. The Dow Jones industrial average jumped more than 100 points.

Consumers still face numerous burdens. Among them is a sharp increase in gas prices. The national average for a gallon, $3.78, has surged 44 cents in a month.

And Social Security taxes rose 2 percentage points beginning Jan. 1. This year, the increase will cost a typical household that earns $50,000 about $1,000. Income taxes for the highest-earning Americans also rose.

Several reports Tuesday suggest that the economy’s underlying health is improving despite the prospect of lower government spending and further budget stalemates:

•The Standard & Poor’s/Case-Shiller 20-city home price index rose 6.8 percent in December from a year earlier. That was the biggest year-over-year increase since July 2006.

•Consumer confidence rose after three months of declines, according to the Conference Board, a business research group. The consumer confidence index rose to 69.6 in February from 58.4 in January. That’s higher than last year’s average of 67.1.

•Bank lending rose 1.7 percent in the October-December quarter, the Federal Deposit Insurance Corp. said.

•Sales of new homes rose to a seasonally adjusted annual rate of 437,000, the Commerce Department said. That’s the highest level since July 2008.

Also

Survey: Budget impasse holding back economy
The political standoff over the U.S. budget is slowing the U.S. economy – more so than any hesitance by Americans to spend freely.
That consensus emerges from the latest Associated Press Economy Survey just as the budget impasse in Washington is about to trigger automatic spending cuts across the economy.
Many of the economists think consumer spending has slowed in response to higher tax burdens but will rebound later in the year. By contrast, they worry that the budget fights in Washington will persist for much of 2013 and drag on economic growth.
Twenty-three of the 37 economists who responded to the survey last week say the paralysis in Washington is a significant factor in slowing the economy.
– Associated Press

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