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Federal budget cuts: Impact and implications

Darrell Spence
Based in:
Los Angeles
Investment experience:

DARRELL SPENCE: In terms of U.S. economic activity this year, I have a tough time disagreeing with what current consensus expectations are, which is for growth of about 2.2%. This will be very similar to the pace of growth that we saw last year, so not really an acceleration at all. And there are a couple of reasons for that.

You have very positive things that are occurring on the housing side and on the auto side, but you also have fiscal restraint in the form of the payroll tax holiday and the sequester. Also a bit on the negative side is the outlook for U.S. exports, because the situation in Europe is very weak, and that’s being reflected in our export markets. But again, on the more positive side, you have a more positive outlook for business investment. So when you start to put together all the positives and negatives, you end up with an economy that is probably likely to continue to track along the same growth rate that it’s been tracking for a couple of years now.

Heading into 2014, though, as the impact of the sequester and as the impact of the payroll tax hike start to moderate, it does seem reasonable that you might get a moderate acceleration and real GDP growth. And maybe that will be the year that we finally break through the 3% mark, which is really the point at which you start to feel like you’re having a self-sustaining and more durable expansion.

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