Markets vs. Politicians
12:00 AM, Dec 1, 2012 • By IRWIN M. STELZER
All of this concentration on whether a dive off the cliff is in store, and on who will pay higher taxes either to avoid that plunge or next year when some more comprehensive deficit-cutting bargain is reached, seems oddly unrelated to what is going on in the economy. Consumers don’t seem to be concerned about the fiscal cliff, and are more confident than they have been in almost five years, which was reflected in their storming of the malls and frantic clicking away on their computers and mobile devices at the start of the holiday season. They are less fearful of losing their jobs, have reduced their mortgage debt to the lowest level in six years, and are comforted by the continued recovery in the housing market. House prices rose for a sixth consecutive month in September (the latest month for which data are available), and are 3 percent higher than last year. Supplies of unsold houses are down and sales of new and existing homes are up, with a blip here and there, to be sure.
Because consumers are local, and businesses are international, bad news from recession-hit Europe, accompanied with pictures of mob scenes in Athens, affect businessmen more than consumers, who are enjoying America’s economic recovery, tepid though its pace may be. But businesses, which have been cutting spending to and into the bone, might, only might, be coming out of their funk. Orders for non-defense capital goods, excluding the volatile aircraft component, rose 1.7 percent in October. If business spending does increase significantly, a big “if,” and if consumers continue to spend on autos and houses, we just might be in for an upside surprise early in 2013, something far better than the 1 percent growth rate or worse, recession, that many economists believe will make 2013 an unhappy new year. Were the economy to grow at something like 3 percent, the deficit would become far more manageable.