The “fiscal cliff” is widely seen as a massive threat looming over a fragile U.S. recovery. But with a little imagination, it is not difficult to see how the combination of expiring tax cuts and spending reductions actually presents an opportunity for tilting the budget backdrop in a pro-growth direction, even if political paralysis makes this scenario rather unlikely.
Economists love motor analogies, and for good reason: they are very useful in illustrating the ebb and flow of economies. In coming months, maybe even years, the help from the auto sector could become a lot more literal, argues Paul Dales, senior U.S. economist at Capital Economics in London. In particular, he expects rising sales following years of depressed consumer spending on vehicles in the wake of the Great Recession could add as much as 0.25 percentage point to U.S. gross domestic product growth per year over the next four years. Here’s why:
The U.S. savings rate sank last month to its lowest since November, official data showed this week, in a sour reminder of how the economy is still dangerously exposed to any financial downturn or other shocks like the fiscal cliff. Following are some facts about this usually overlooked indicator:
Latin America has defied one of the most elementary rules of macroeconomics in the past decade, Citigroup economists Joaquin Cottani and Camilo Gonzalez found in a report.
Ironically, an increase of capital inflows to Latin America in the last few years due to unappealing ultralow yields in industrialized countries and the region’s relative economic success is posing a threat for development, according to a recent paper that provides wider background to BRIC criticism of the latest U.S. Federal Reserve´s quantitative easing.
Richard Leong contributed to this post
U.S.durable goods orders rebounded a solid 9.9 percent in September following the prior month’s plunge. However, a proxy for business investment was essentially stuck in neutral. This was sufficiently worrying to JP Morgan economists to force them to revise down their estimates for third quarter U.S. economic growth down to 1.6 percent from 1.8 percent. Barclays economists also marked down their Q3 GDP forecast by 0.2 percentage point, putting it at 1.8 percent. The Reuters consensus forecast for the number, due out on Friday, is 1.9 percent.
The Federal Reserve’s open-ended bond-buying stimulus announced last month was coupled with a promise to continue purchasing assets “if the outlook for the labor market does not improve substantially.” Central bank officials are expected to continue discussing what parameters they will take into account to define such progress, but are not expected to come to any hard and fast decisions just yet.
The term ‘fiscal cliff’ has now safely transitioned from economic jargon to popular cliché. But how worried should Americans be about the growth-stunting mélange of expiring tax cuts and spending reductions set to begin kicking in at the start of next year?