Free Newsletters - Space News - Defense Alert - Environment Report - Energy Monitor
. Earth Science News .




POLITICAL ECONOMY
Outside View: Deceptively strong GDP report expected
by Peter Morici
College Park, Md. (UPI) Apr 25, 2013


disclaimer: image is for illustration purposes only

Forecasters expect the U.S. Commerce Department to report Friday the U.S. economy grew a brisk 3.1 percent in the first quarter but don't break out the champagne.

Like a corporation with a spruced-up profits statement at a critical shareholder meeting, several one-time factors contributed to this seemingly robust performance -- the economy is already slowing and new crises are threatening.

In the fourth quarter, defense purchases and inventory investments were uncharacteristically weak and those rebounded in the New Year. Also, extraordinary year-end corporate bonuses and dividend payments, intended to soften the blow of higher 2013 taxes, pushed up consumer spending in January and February.

Those factors won't repeat in the second quarter and January tax increases are starting to bite -- consumers appear to have hunkered down and confidence in the economic outlook is waning.

Higher payroll taxes and income taxes paid by the wealthy took away $165 billion in purchasing power. Working- and middle-class families adjust spending to accommodate higher taxes but with a lag, because they need to keep driving to work and feeding their children, now car dealers and shopping malls report slowing sales.

For upper-income families, changes in the tax code were extraordinarily complex and many pay taxes on a quarterly basis on self employment and investment income. The full impact of higher taxes on their after-tax income wasn't reckoned until their accountants computed their first 2013 tax payment due April 15 -- now they will be trimming purchases, too.

Along with sequestration, higher taxes will subtract more than $200 billion from household purchasing power and government spending -- that will slow demand for what Americans make and gross domestic product growth and make jobs tougher to find.

A key element of the tax changes -- reduced mortgage interest deduction -- will dampen existing home sales. Aided by the Federal Reserve's easy money policies and a surge of wealthy buyers from Europe's troubled economies, speculative investors have been scarfing up properties in choice markets in Florida, New York City and elsewhere with cash offers that frequently squeeze out ordinary homebuyers seeking a permanent primary residence.

In several markets, prices have zoomed past what these ordinary buyer's incomes will support; hence, speculators bets require that somehow after-tax household incomes will somehow surge permitting them to unload at a profit.

That is a dubious assumption and the speculative surge cannot end well -- housing price increases will slow, plateau or could crash all together. The housing market bump to household wealth that supported consumer spending in recent months will relent.

Similarly, the Fed's low-interest policies are boosting stock and agricultural land values -- at a pace beyond what future profitability of either asset class should sustain. Either slower growing values or outright adjustments appear inevitable and the resulting drag on consumer spending will slow the recovery.

The continuing surge of Chinese exports onto American store shelves and weakening demand for U.S. products in recession-torn Europe are dampening demand for U.S. manufactured products.

Japan's weak yen policy is imposing tougher competition on U.S. automakers and other manufacturers of technology-intensive products.

Already, the Commerce department reported durable goods orders fell 5.7 percent in March, indicating much slower sales going forward.

The bottom line: Most forecasters expect growth to slow to less than 2 percent in the second quarter and to remain below 3 percent through the end of 2014.

(Peter Morici is an economist and professor at the Smith School of Business, University of Maryland, and widely published columnist. Follow him on Twitter @pmorici1)

(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

.


Related Links
The Economy






Comment on this article via your Facebook, Yahoo, AOL, Hotmail login.

Share this article via these popular social media networks
del.icio.usdel.icio.us DiggDigg RedditReddit GoogleGoogle




Memory Foam Mattress Review
Newsletters :: SpaceDaily :: SpaceWar :: TerraDaily :: Energy Daily
XML Feeds :: Space News :: Earth News :: War News :: Solar Energy News





POLITICAL ECONOMY
Eurozone faces new risks amid $13 billion Cyprus bailout
Brussels (UPI) Apr 19, 2013
The European Union faces new risks to its 17-member eurozone as a $13 billion bailout of Cyprus failed to calm fears, exacerbated by a Fitch downgrade of Britain. Investors warned Europe in and outside the eurozone faced dangers similar to Latin America's sovereign defaults, state confiscation of deposits and other multiple crises of the last century which carried into 2002 in parts of ... read more


POLITICAL ECONOMY
U.S. lawyer defends Australian asylum seekers

Landslide kills 14 in Ecuador

Pakistan quake victims burn tyres at angry protests

Hong Kong searches for 6 missing crew after boat crash

POLITICAL ECONOMY
Space debris problem now urgent - scientists

Nothing Bugs These NASA Aeronautical Researchers

US eases export rules on aerospace parts

MEADS Low Frequency Sensor Cues Multifunction Fire Control Radar in Test

POLITICAL ECONOMY
Insights into deadly coral bleaching could help preserve reefs

Israeli scientists discover why soft corals have unique pulsating motion

Campaign to save Barrier Reef from industry

Rivers Act As 'Horizontal cooling towers'

POLITICAL ECONOMY
EU court maintains seal fur ban

Sea stalactites provide clues to origin of life

Chinese ship sinks off Antarctica: Chile

Age matters to Antarctic clams

POLITICAL ECONOMY
Deep, Permeable Soils Buffer Impacts of Agricultural Fertilization on Streams and Rivers in Southern Amazon

Ecology, economy and management of an agro-industrial Amazon frontier

Double cropping helps Brazil develop

New studies explore mango's potential health-affirming properties

POLITICAL ECONOMY
Afghan quake and floods kill 38: officials

Thirteen killed, dozens hurt in Afghan quake

China migrants rush home to help quake-hit families

China's Sichuan mourns quake dead one week later

POLITICAL ECONOMY
Nigeria amnesty panel says talks possible with Islamists

Scaled down US-Morocco war games resume: embassy

S.African leaders at odds on C.Africa troop re-deployment

France hands Timbuktu mission to Burkina Faso troops

POLITICAL ECONOMY
Ancient DNA reveals Europe's dynamic genetic history

Ancient skeletons reveal genetic 'history' of Europe's peoples

From mice to humans, comfort is being carried by mom

DNA study suggests human immunity to disease has ethnicity basis




The content herein, unless otherwise known to be public domain, are Copyright 1995-2014 - Space Media Network. AFP, UPI and IANS news wire stories are copyright Agence France-Presse, United Press International and Indo-Asia News Service. ESA Portal Reports are copyright European Space Agency. All NASA sourced material is public domain. Additional copyrights may apply in whole or part to other bona fide parties. Advertising does not imply endorsement,agreement or approval of any opinions, statements or information provided by Space Media Network on any Web page published or hosted by Space Media Network. Privacy Statement