US budget impasse holding back economy: Survey



CHRISTOPHER S. RUGABER | AP

Published — Tuesday 26 February 2013

Last update 26 February 2013 5:47 pm

| نسخة PDF Print News | A A

WASHINGTON: The political standoff over the US budget is slowing the US 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. The next-biggest factors they cite, in order: too little job growth, excessive government regulation and taxes, stagnant wages and cautious bank lending. Only eight say they worry about consumers saving more and spending less.
The budget impasse that will set off $85 billion in spending cuts starting Friday will shave an estimated half-percentage point from economic growth this year.
It will be followed by other key deadlines: Much of the government will shut down March 27 without new legislation to authorize spending. Congress must also agree to raise the government’s borrowing limit in May or the government will risk defaulting on its debt.
Meeting those deadlines could involve more spending cuts or tax increases. Either could further slow growth.
The economists’ views suggest that the budgetary paralysis hurts the economy in at least two ways: It’s eroding consumer and business confidence, which could reduce spending and investment. And it will trigger the government spending cuts that are about to kick in.
These come on top of the reduced take-home pay for most workers caused by the Social Security tax increase that took effect Jan. 1.
Businesses “aren’t willing to hire people or invest in plant and equipment knowing the uncertainty,” says Sung Won Sohn, an economics professor at California State University Channel Islands. “The prudent thing to do is to postpone.”
The AP survey collected the views of private, corporate and academic economists on a range of issues. Among their views:
— The economy will grow 2.2 percent this year, a modest pace that roughly matches the average annual rate since the recession ended in June 2009. In a typical economy, such growth wouldn’t be a concern. But it hasn’t been enough to repair the damage from the Great Recession. Faster growth — 4 percent to 5 percent annually — would be needed to rapidly reduce the unemployment rate, which is still painfully high at 7.9 percent.
— Growth should increase in 2014 to 2.9 percent, economists expect. That would be the fastest for a full year since the recession ended and would roughly match the average for the five years preceding the Great Recession. Still, the economists foresee the unemployment rate at 6.3 percent by the end of 2015 — nearly three years from now. In a normal economy, the unemployment rate is below 6 percent.
— Just over half think Europe’s recession will end this year. That could benefit US exporters. The 17 nations that use the euro have been in recession since mid-2012. But some encouraging signs have emerged: Germany reported a larger-than-expected budget surplus this month. And German business confidence rose in February for a fourth straight month.
— Nearly half think sales of previously occupied homes will return to normal levels next year. More than six years after the housing bubble burst, residential real estate is finally rebounding. Sales in 2012 reached 4.7 million. That’s still well below the 5.5 million in annual sales considered healthy. But 17 of the economists think sales will return to that level in 2014. Ten others think it will happen in 2015.
— Though the economists favor reducing the government’s budget deficit, nearly all prefer doing so over the long run rather than immediately.
One consequence of the Washington budget battles was a deal between the White House and Congress to let a cut in Social Security taxes expire Jan. 1. That tax increase cost a typical household with $50,000 in income about $1,000. Retail sales slowed last month as a result. And some big retailers, notably Wal-Mart, blamed the Social Security tax increase for a darker outlook for sales in coming months.
But when asked to choose the biggest reasons the economy isn’t growing faster, barely one in five economists cite consumers’ reluctance to spend.
Why the lack of concern?
Many economists think the damage from higher Social Security taxes will prove temporary. Most think consumer spending will slow in the first three months of this year but then pick up as companies add jobs. Some employers are even willing to pay more: After stagnating since the recession ended, hourly pay has been rising faster than inflation the past three months.
Analysts also generally think consumers’ finances have recovered from the excesses of the housing bubble, when many piled up debt and bought larger houses than they could afford. As Americans repaid debts, they spent less.
But now, home values are up. Stocks have roughly doubled since June 2009. Americans who feel wealthier are typically more likely to spend. After years of delaying big purchases of autos, appliances and other items, consumers are spending more for them. Auto sales in January were the best for that month in five years.
“It’s been nearly four years since the recession ended,” says Beth Ann Bovino, deputy chief economist at Standard & Poor’s. Consumers “have been saving more, and they’ve put more money in the bank, and I think they’re ready to spend more. There’s a lot of pent-up demand.”

What's happening around Saudi Arabia

JEDDAH: The Al-Haramain Train project is described as the largest public transportation project in the Middle East. This vital and strategic project is one of the implementation schemes of the mass expansion of the Saudi railway across the country.Th...
JEDDAH: The number of marriages between expatriates and Saudis has dropped 84 percent to 1,928 since the start of this Islamic year that began on Oct. 24, compared to the same period the previous year.The Ministry of Justice said that there were 12,0...
JEDDAH: Unofficial marriage is a refuge for a divorced mother to lead a married life while keeping her children in her custody but without the knowledge of the former husband who could demand the custody of the children if he learned about the ex-wif...
JEDDAH: Makkah’s health department has set up a committee to verify the sick leave certificates of employees.The department stated it would apply government regulations on sick leave, which includes people providing the address of the facilities wher...
RIYADH: The directorate of roads and transport has registered 20 cases of violations worth SR24,500 in Al-Qassim, where the transport ministry continued its surveillance drive against the companies in the transport business.According to the directora...
RIYADH: Muslims must cut traditionally high electricity use during Ramadan in line with the principles of austerity and self-control they are supposed to adopt in this month, economists say.Economist Al-Sadeq Idris said energy use increases during Ra...
RIYADH: The implementation of an integrated health plan to combat MERS has resulted in a sharp drop in cases, with only one out of 736 samples testing positive for the contagion in the Kingdom in the last six days. Health Ministry spokesman Dr. Khal...
RIYADH: Muslims must cut traditionally high electricity use during Ramadan in line with the principles of austerity and self-control they are supposed to adopt in this month, economists say.Economist Al-Sadeq Idris said energy use increases during Ra...
JEDDAH: The Ministry of Commerce and Industry will begin next Tuesday to check whether companies are complying with new laws requiring them to place proper price labels on all their products.It is mandatory for companies to stop using phrases such as...
RIYADH: Minister of Islamic Affairs Saleh Al-Asheikh chaired the first meeting with Yemeni scholars to exchange ideas on how to strengthen their role in restoring peace in their country.The first Saudi-Yemen scholars meeting, dubbed the “outreach sch...
RIYADH: To cope with the growing number of applicants (boys and girls) at technical colleges that reached 126,023 last year, a state-run organization launched an online unified portal to ease the enrolment procedures.According to the Technical and V...
RIYADH: A senior government official from Dhaka, who visited Riyadh last week, has sorted out technical issues to expedite issuing 1.5 million machine readable passports (MRP) to Bangladeshi expatriates in the Kingdom. Information and Communication T...
JEDDAH: Jeddah municipality is keen to provide health and food security to residents and visitors of the city, and they are continually conducting inspections of food stores, restaurants, markets and food storage facilities to avoid any violations by...
JEDDAH: Custodian of the Two Holy Mosques King Salman has been awarded a top international prize for his contribution to the propagation of the Qur’an.He was named the “Islamic Personality of the Year” by the Holy Qur’an International Memorization Or...
JEDDAH: Deputy Crown Prince Mohammed bin Salman, second deputy premier, minister of defense and chairman of the Economic Affairs and Development Council, held a meeting in Jeddah on Monday with Sheikh Tahnoon bin Zayed, deputy national security advis...

Stay Connected

Facebook