Irwin Stelzer | Knowns and Economic Unknowns

Whether consumers will continue to spend in the new year will determine the pace at which the American economy will grow in 2013. Some economists are calling a 2 percent annual growth rate “the new normal,” while quibblers who believe they can forecast growth within a few decimal points say 1.7 percent growth is more likely. Both guesses are based on the assumption that in 2013 consumers will continue to snap up large numbers of cars, and that the housing sector will continue to recover.

Auto sales should remain buoyant. The fleet of vehicles on the road is ageing, and with the jobless rate at least stabilized so that those in work can be reasonably confident that they will not be laid off—one of the reasons President Obama did so well despite continued high unemployment—there is little reason to defer gratification any longer. Besides, most buyers are sufficiently innumerate to be able to persuade themselves that the more fuel-efficient newer vehicles will “pay for themselves” in a relatively short time. So count on relatively good auto sales.

So, too, with houses. Interest rates are at record lows—around 3.3 percent for 30-year fixed-rate mortgages—and only last week Federal Reserve Board chairman Ben Bernanke told the New York Economic Club that the Fed will continue purchasing mortgage-backed securities to the tune of $40 billion each and every month to ensure that mortgage rates don’t go up. If not forever, at least into 2015. Sales of existing homes in October were 10.9 percent above year-earlier levels, and likely to end the year at their highest level since before the financial crisis hit. Prices are up 11 percent over last year, and inventories of unsold houses are down over 22 percent, to their lowest level relative to sales in almost seven years. The number of new homes being built and sold is also rising, although not to levels seen before the housing slump, and builders, whose shares by one measure are up 90 percent this year, are more confident than they have been since May 2006.


(18853 Posts)