I read and subscribe to dozens of publications that produce forecasts for the US economy and a variety of other indicators. One report I read every week comes from the Wells Fargo Economics Group. Although they are not perfect (no one is), their team of 15 economists and analysts puts out a very good report each week.
And best of all, it’s FREE. If you would like to subscribe, CLICK HERE and then go to the “Request Reports by Email” link on the bottom left column of the page.
Below is the latest Wells Fargo forecast for the US economy in 2013. Do keep in mind, however, that the report assumes there will not be another financial crisis this year, and it also assumes that the debt ceiling will be raised in late February or early March so that the US does not default on its debt.
Those may be reasonable assumptions, or maybe not. Time will tell. Just something to keep in mind. With those caveats noted, here is their forecast for 2013:
“The drama over the resolution of the fiscal cliff, which spilled over into the early part of 2013, appears to have caused economic activity to pull back a bit toward the end of 2012 and some of that weakness will likely spill over into the new year. Consumer confidence and small business confidence took a tumble during the latter part of 2012, and there appears to have been at least some carry through into spending and investment outlays. Housing is one notable exception. The NAHB/Wells Fargo Homebuilders’ Index actually increased further in December and is now close to crossing back above the key 50 break-even level during the early part of 2013.
Any relief over the resolution of the fiscal cliff should be tempered by remembering how Julius Caesar shrugged off the warnings that his death would come not past the Ides of March. The agreement signed into law during the first week of January does not solve all the outstanding fiscal issues facing the economy in 2013.
March will be a momentous month, with a trifecta of budget decisions due to be made, including dealing with the sequester on March 1, raising the debt ceiling around the middle of the month and passing a continuing resolution by March 27. Not only will these decisions involve making critical choices about spending but they also hold the prospect of further tax increases. President Obama himself noted in his Dec. 31 press briefing that ‘revenues have to be part of the equation in turning off the sequester.’
The prospect of further tax increases by the middle of March will likely keep many business decisions on hold. Economic activity will clearly move forward, it just will not likely progress all that rapidly. A hospital, for example, would understandably be reluctant to commit to major capital purchases if reimbursements may be cut further.
The weak ending to 2012 and slow start to 2013 explains why we are projecting such slow real GDP in 2013, following a 2.2 percent gain in 2012. Economic growth is expected to gain momentum over the course of the year, as households and businesses adjust to the new fiscal framework and residential construction steadily improves. Even though real GDP is expected to rise just 1.7 percent in 2013, the first quarter is the only period where growth is expected to be below that figure.
Small businesses will also remain cautious, if deductions could be scaled back further in a couple of months. When coupled with the smaller paychecks that all workers will see in early 2013 due to higher Social Security taxes, we see 2013 getting off to a fairly slow start.
Consumer spending is expected to rise at a 1.1 percent pace in the first quarter, while business fixed investment is expected to decline at a 1.0 percent pace. Overall growth should remain positive thanks to the continued recovery in residential construction and a narrowing in the trade deficit. Real GDP is expected to grow at a 1.0 percent pace in the first quarter, matching what we believe growth was in the prior quarter.
Residential construction remains the economy’s bright spot. Single-family housing starts are expected to rise 27 percent this year and multi-family starts should rise near 30 percent. The rebound in single-family construction comes from severely depressed levels and will provide only a modest direct boost to overall growth. Homebuilding has considerable knock-on effects, however, and gains in single-family starts will clearly help retailers, financial services, building products manufacturers and commercial development.
With economic growth off to a slow start in 2013, the Federal Reserve will keep policy on hold [ie – unchanged] for the foreseeable future. The recent debate about whether the Fed is getting set to end its mortgage-purchase program makes for interesting theater but is unlikely to produce meaningful results during the first half of 2013 and we would be surprised if the program ends before next fall. The Fed would like to see a self-reinforcing recovery take hold in the housing market before they pull support out from under the mortgage market.”
Have a great weekend everyone!
Sorry, comments are closed for this post.