Economists See Positive Signs in US Economy

Monday, 18 Mar 2013 12:35 PM

By Dan Weil

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Many experts have expressed pessimism about the economy, saying the payroll tax increase and the sequester would take a toll on the economy.

But so far the economy held up strong, although it’s way too early to judge the sequester, which just began March 1.

However, the payroll tax hike apparently hasn’t dented the consumer much — so far anyway. Retail sales jumped 1.1 percent in February, the highest increase in five months.

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

Other indicators have shown strength too. Non-farm payrolls gained 236,000 in February, with the unemployment rate falling to a five-year low of 7.7 percent, and industrial production soared 0.7 percent in February.

Coming into this year, the consensus forecast was for growth of about 2 percent in the economy, but now economist Ethan Harris of Bank of America Merrill Lynch has boosted his estimate of first-quarter growth to 3 percent from 2 percent, The New York Times reports.

“It feels like the economy has some momentum and is in a little bit better shape to handle the sequester,” Harris tells the paper. While higher taxes and government spending cuts represent a “speed bump, the economy has better shock absorbers,” he says.

However, the Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment dropped to 71.8 in March from 77.6 in February, the lowest level in over a year. Analysts had expected a reading of 78.

Nigel Gault, chief U.S. economist at IHS Global Insight, told The Times that the uneasiness of consumers in the consumer sentiment survey “may simply be a vote of no confidence in the government and the problems in Washington. It may not be represented in what consumers do.”

Gault also raised his forecast for first-quarter growth, noting that the most important factor underlying the economy’s recent strength is an improving housing sector.

“Housing helps everything,” Gault stated.

As for the retail sales increase, “It’s comforting to see this,” Raymond Stone, managing director of Stone & McCarthy Research Associates in Princeton, N.J., tells Bloomberg. “The sequestration and the cutbacks will hurt and take some toll, but I think we are on the right track.”

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

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