Economy Watch: CBO Details Impact of Fiscal Cliff

By Dees Stribling, Contributing Editor

The Congressional Budget Office—which, despite the name, Congress is under no obligation to listen to—reported on Thursday on the “economic effects of reducing fiscal tightening.” Or, as it’s better known, the fiscal cliff.

That the entire package of spending cuts and tax increases would probably cause a recession is widely believed, and in fact the CBO detailed that eventuality in a report in August called “Update to the Budget and Economic Outlook: Fiscal Years 2012–2022.” In its straightforward way, the CBO noted in that report that the sharp reduction in the deficit would cause the economy to contract but would also put federal debt on a path “more likely to be sustainable over time.” Short-term pain, long-term gain, in other words, a notion that unsurprisingly was treated like kryptonite on the campaign trail.

The CBO’s new report focuses on the economic effects of eliminating individual components of the spending cuts or tax increases scheduled to take effect in January, which include the automatic reductions in defense spending; automatic reductions in nondefense spending and the scheduled reductions in Medicare’s payment rates for physicians; the extension of certain expiring tax cuts and indexation of the alternative minimum tax; and extension of the payroll tax cut and emergency unemployment benefits.

Eliminating the first three of those changes would boost real GDP by about 2.25 percent by the end of 2013, the report predicts. Eliminating all of those changes would boost real GDP in 2013 by about 3 percent. The bulk of that impact would stem from changes in tax policies, the CBO says.

Seniors housing builders more confident now

Builder confidence in the 55+ housing market for single-family homes showed significant improvement in the third quarter of 2012 compared to the same period a year ago, according to the National Association of Home Builders’ latest 55+ Housing Market Index, which was released on Thursday. The index more than tripled year-over-year from a level of 12 to 36, which is the highest third-quarter reading since the inception of the index in 2008.

The 55+ multifamily condo index also experienced a significant annual increase: 13 points to 23, which is the highest third-quarter reading since the inception of the index in 2008, even though condos remain the weakest segment of the 55+ housing market. All 55+ multifamily housing market index components increased considerably compared to a year ago, with present sales rising 13 points to 22; expected sales for the next six months jumping 19 points to 29; and traffic of prospective buyers climbing 11 points to 22.

“Like other segments of the housing industry, the market for 55+ housing is continuing on a steady upward path, driven by improving conditions in additional markets around some parts of the country” NAHB chief economist David Crowe noted in a press statement. “While we expect the upward trend to continue as the recovery broadens, the speed of the recovery is being constrained by factors as tight mortgage credit, making it difficult for potential 55+ customers to sell their current homes, and shortages of inputs to construction such as buildable lots.”

Unemployment claims down

THe U.S. Department of Labor reported on Thursday that for the week ending Nov. 3, initial unemployment claims were 355,000, a decrease of 8,000 from the previous week’s unrevised figure of 363,000. The four-week moving average was 370,500, an increase of 3,250 from the previous week’s unrevised average of 367,250.

Wall Street continued its post-election slide on Thursday—worried now about the fiscal cliff, apparently, or maybe the latest dustup in Greece—with the Dow Jones Industrial Average losing 121.41 points, or 0.94 percent. The S&P 500 was down 1.22 percent and the Nasdaq lost 1.42 percent.