Another reminder about why the economics blog Calculated Risk is so indispensable if you want to really understand what’s going on in the economy.Bill McBride (the blog’s author) has put together a dazzling 10-part series, examining what will happen to the economy in 2013.
Here are the 10 questions he examines:
• Question #1 for 2013: US Fiscal Policy
• Question #2 for 2013: Will the U.S. economy grow in 2013?
• Question #3 for 2013: How many payroll jobs will be added in 2013?
• Question #4 for 2013: What will the unemployment rate be in December 2013?
• Question #5 for 2013: Will the inflation rate rise or fall in 2013?
• Question #6 for 2013: What will happen with Monetary Policy and QE3?
• Question #7 for 2013: What will happen with house prices in 2013?
• Question #8 for 2013: Will Housing inventory bottom in 2013?
• Question #9 for 2013: How much will Residential Investment increase?
• Question #10 for 2013: Europe and the Euro
His number one question is fiscal policy, and here his analysis is incredibly important:
Hopefully the House will fold their losing hand soon. If they are planning on taking the country to the brink, and betting voters will forget like after 2011, I think that is another losing bet.
Although the negotiations on the “sequester” will be tough, I suspect something will be worked out (remember the goal is to limit the amount of austerity in 2013). The issue that might blow up is the “continuing resolution”, and that might mean a partial shut down of the government. This wouldn’t be catastrophic (like the “debt ceiling”), but it would still cause problems for the economy and is a key downside risk.
And a final prediction: If we just stay on the current path – and the “debt ceiling” is raised, and a reasonable agreement is reached on the “sequester”, and the “continuing resolution” is passed – I think the deficit will decline faster than most people expect over the next few years. Eventually the deficit will start to increase again due to rising health care costs (this needs further attention), but that isn’t a short term emergency.
Housing starts are on pace to increase about 25% in 2012. And even after the sharp increase last year, the approximately 770 thousand housing starts in 2012 will still be the 4th lowest on an annual basis since the Census Bureau started tracking starts in 1959 (the three lowest years were 2009 through 2011).
Here is a table showing housing starts over the last few years. No one should expect an increase to 2005 levels, however demographics and household formation suggest starts will return to close to the 1.5 million per year average from 1959 through 2000. That means starts will come close to doubling over the next few years from the 2012 level.
Both state and local government and construction hiring should improve in 2013. Unfortunately there are other employment categories that will be hit by the austerity (especially the increase in payroll taxes). I expect that will offset any gain from construction and local governments. So my forecast is close to the previous two years, a gain of about 150,000 to 200,000 payroll jobs per month in 2013.
Anyway, the whole series is wonderful. Start here and read all of the questions.