It’s been a while since we’ve had good news about our economy, so the recent upbeat reports are welcome. The deficit picture for 2013 has brightened a bit, along with an upturn in the housing market. Yet those developments don’t tell the full story. Our economic horizon remains cloudy due to serious structural challenges.
In fact, this improving economic picture threatens to diminish our sense of urgency about striking the needed “grand bargain” to address our fiscal disease. That shouldn’t happen — and Washington policy makers should use the continuing talks about fiscal 2014 appropriations levels to nail down a framework for the deal we all need.
First, let’s look at the good news in context. Several weeks ago, the Congressional Budget Office reported that the federal budget deficit for fiscal 2013 will be $642 billion. That’s a substantial drop from 2012′s $1.1 trillion deficit. But several significant reasons for the decline are unusual events: large dividend payments from Fannie Mae and Freddie Mac; savings from the ill-conceived and unsustainable sequester; and accelerated tax revenues from wealthy individuals anticipating the fiscal cliff.
More good news came in recent weeks with signs of strength in the housing market — an upward trend in home sales and housing starts. Yet unemployment remains stubbornly high, at 7.6 percent, and investors are nervously wondering how much and how quickly the Federal Reserve Bank will pull back on its monetary stimulus program.