Despite a huge downward revision of Q1 GDP growth from 2.4% to 1.8%, data for Q2 look decent. Durable goods orders look OK, home sales are good and despite sequestration and the payroll tax increase, consumer spending is holding up surprisingly well and savings rates actually edged up to 3.2% in May from 2.8% in April. Given the continued economic headwinds, however, Q2 GDP will be no better than 1.5%.
Tag Archives: sequestration
Congressional Cowards
Only by pushing off all hard decisions was Congress able to prevent us from going over the fiscal cliff. Now we face Debt Ceiling Battle II which must be resolved by March, a fight over annual spending cuts of $100 billion which after being postponed now commence in March, and a government budget that expires in, yup, March! Based on what we’ve seen, the next few months will be terrifying.
Cliff-Hanger
Washington will not solve the Fiscal Cliff during the lame duck session of Congress. Rather, they’ll pass a stop-gap measure raising the debt ceiling and more importantly giving themselves more time to pass revenue-positive tax reform, consisting of broadening the tax base and lowering marginal tax rates. As now structured the Cliff mixes about $4 in tax hikes for each $1 in spending cuts; minimally, it must be balanced.