U.S. Economy Showing Strength As Spending Cuts Loom
|CHRISTOPHER S. RUGABER, AP Economics Writer|
Home prices are also rising steadily, and banks are lending more. Such improvements suggest that the economy is resilient enough to withstand the deep government cuts that will kick in Friday.
That's especially encouraging because uncertainty over the federal budget could persist for months.
"The stars are lining up for stronger private sector growth this year," said
Sales of new homes jumped nearly 16 percent in January to their highest level in 4 1/2 years, adding momentum to the housing recovery. Consumer confidence rose in February after three months of declines. And home prices increased in December from the same month in 2011 by the largest amount in more than six years.
The upbeat economic news contributed to a rally on
Consumers still face numerous burdens. Among them is a sharp increase in gas prices. The national average for a gallon,
Both factors could reduce overall spending.
On Friday, about
For about 2 million long-term unemployed, benefits now averaging
Overall, the tax increases and spending cuts could shave up to 1.2 percentage points from growth this year, economists estimate. Alexander estimates that without the spending cuts or tax increases, the economy would expand more than 3 percent this year. Instead, he predicts growth of only 2 percent.
But growth should accelerate later this year as the effects of the government cutbacks ease, he and other economists say. And several reports Tuesday suggest that the economy's underlying health is improving despite the prospect of lower government spending and further budget stalemates:
_ The Standard & Poor's/Case-Shiller 20-city home price index rose 6.8 percent in December from a year earlier. That was the biggest year-over-year increase since
_ Consumer confidence rose after three months of declines, according to the Conference Board, a business research group. Confidence had plunged in January after higher taxes cut most Americans' take-home pay. The rebound, though, suggests that some consumers have begun to adjust to smaller paychecks. The consumer confidence index rose to 69.6 in February from 58.4 in January. That's higher than last year's average of 67.1.
_ Bank lending rose 1.7 percent in the October-December quarter, the
_ Sales of new homes rose to a seasonally adjusted annual rate of 437,000, the
"Builders are not putting up homes fast enough to meet underlying demand," said
New homes have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about
Construction hiring has picked up in recent months. The industry has gained 98,000 jobs since September, its best stretch since the spring of 2006 _ before the housing bubble burst.
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