News Room

The economy: What to expect in 2013

By Paul J. Lim
Money Magazine

December 13th, 2012 - When you find yourself on a precipice, the standard advice for keeping calm is to not look down. Next year, don't look up.

At the 30,000-foot level, the world's economy appears as stormy as it's been since the financial crisis blew over. Europe remains mired in debt. China faces a slowing growth rate and an expanding housing bubble.

Here at home, fears about how the government would handle the fiscal cliff -- the tax hikes and budget cuts that were set to start kicking in at year's end -- frightened businesses into delaying capital spending and hiring, erasing what little momentum the economy had going into 2013. Tilt your gaze toward ground level, though, and the picture brightens. Dark shadows that cast a pall over consumers are beginning to lift as the housing and job markets slowly warm. Prepare correctly, and these strange conditions present opportunity.

In Money magazine's Make More in 2013, you'll learn how to get more investment income at a time of super-low rates, why, as a prospective home seller or buyer, you need to stop sitting on your hands, and how you can start exploring job opportunities again. Up first: A look at the U.S. economy and what's contributing to a rosier outlook for growth.

The economy

Why is the view from terra firma so much better than from up high? Three words: employment, debt, and housing.

Jobs are coming back. Hiring is hardly robust yet, but the unemployment rate is well off its 10% peak. By this time next year, the economy should be adding 173,000 jobs a month, up from this year's 157,000, according to the National Association for Business Economics.
"We'll see a slow but steady increase in employment throughout the year," says Sean Snaith, economics professor at the University of Central Florida. "The pendulum is shifting toward workers again."

How quickly that pendulum shifts depends in part on how soon the fog over taxes and budget cuts lifts. Businesses are in a holding pattern, but they're in far better financial shape than since the credit crisis.

Consumer debt is shrinking. The balance sheets of American families look fairly healthy too. Consumers have been working down their levels of installment debt, and that, combined with low borrowing rates for houses and cars, has eased payment burdens significantly.

"We're not going to be another Japan, which lost two decades dealing with debt," says Hank Smith, chief investment officer at Haverford Trust. "In the corporate and household sectors, that's s already taking place."

Finally, housing is coming back. For five years the real estate market has cast the longest of shadows. Now the sun is overhead.

In many areas, the inventory of homes on the market is down 20% or more from just a year ago. Nationwide, there are 1.8 million houses for sale. At the peak, in the summer of 2007, that figure was more than twice as high. Sales of existing single-family homes, meanwhile, jumped 11% in the 12 months through September. Demand should remain elevated as the Fed keeps buying bonds so mortgage rates stay low.

(www.cnnmoney.com)