WASHINGTON – A year ago, we brought you an analysis of the forces that appeared likely to shape the U.S. economy, for better and worse, in 2013. So, what did we get right and what did we get wrong? And of the things we posed as open questions, what did the answers turn out to be? Here, in the interest of pundit accountability, is a look at our 2013 economic outlook, with the lovely benefit of hindsight:
• “Will 2013 bring a genuine, no-holds-barred recovery?” This was the headline on the piece in which we asked, “Will this be the year that the economy finally breaks out of its pattern of sluggish growth that has held since the recession ended in 2009?” The answer is a resounding no. On jobs, for example, the nation added an average of 183,000 a month in 2012 — and 189,000 a month through the first 11 months of 2013. Gross domestic product grew 2.8 percent in 2012 and averaged a 2.6 percent annual pace of growth through the first three quarters of 2013.
There is no dispute: In terms of overall growth rates, 2013 was a more-of-the-same kind of year.
• The housing rally. One of the biggest reasons for economic optimism at the dawn of 2013 was the sense that the U.S. housing market was finally turning a corner and entering a robust expansion. In a narrow sense, this prediction has proved true. Home prices were up 13.6 percent in the 12 months ended in October, as measured by the S&P/Case-Shiller home-price index. So, winning, right?
Well, yes and no. That’s a nice rally, and maybe the most one could realistically hope for in a year. But housing remains far below its usual level of contribution to the economy. In the third quarter, residential investment was 3.1 percent of GDP, well below the 4.7 percent average since 1947.
• Household debt. We noted a year ago that the combination of low interest rates and work by U.S. consumers to pay down mortgage, credit card and other debt could mean that they would be in better shape in 2013. This looks to be spot on. Progress on these fronts has remained steady, and it looks as if the deleveraging process, which held back spending for half a decade, may finally be done.
• State and local government. At the end of 2012, it looked as though the long contraction in spending and employment among state and local governments might have run its course. That also looks about right. In November 2012, those governments employed 19.081 million Americans. A year later, it was 19.151 million. It’s not much of an uptick — but in contrast to 2010, 2011 and 2012, state and local government wasn’t a drag on job creation.
• The federal government blowing it. By the second day of 2013, it was clear that one fear we raised had not come to fruition: The United States did not go over the “fiscal cliff” of dramatic tax hikes.
However, a second concern proved more valid. “Too much austerity, too fast” was the risk we identified then, and that indeed was the factor holding back growth in 2013.
First there were the moderate tax increases that were included in the fiscal-cliff deal. Then, on March 1, the automatic spending cuts under sequestration went into effect. By JPMorgan Chase’s estimates, federal fiscal policy dragged growth down 1.8 percentage points in fiscal 2013.
In other words: 2013 could have been quite a strong year of growth, but for aggressive belt-tightening by the U.S. government.
• Smooth sailing internationally. Hey, remember the eurozone crisis? Started in Greece? Seemed on the verge of causing a new global financial crisis off and on in 2010, 2011 and 2012? No? You’re not alone.
Some of the best news for the U.S. in 2013 was the absence of negative shocks from Europe or elsewhere in the world. We ticked off a litany of these risks, from a return of the eurozone crisis to a Chinese recession to geopolitical instability in the Middle East causing an oil-price spike. None of these materialized.
Maybe it’s good luck. Maybe it’s good policy. Either way, the U.S. economy had the luxury of a period of global stability that meant that the major threats to growth were all within U.S. borders.
In other words, we had a year of okay growth that could have been quite a bit better if fiscal austerity hadn’t taken a bite out of things.