Signs of a Surprising Economic Boom

US News

Bad news has rarely seemed so good.

After several discouraging reports on the economy, forecasters are starting to believe 2013 could turn out better than expected. The recent bad news has gotten plenty of attention: The latest GDP report, for instance, shows the economy shrank at the end of 2012. And the unemployment rate ticked upward in January, to 7.9 percent. Those are gloomy numbers more consistent with a recession than a robust expansion.

But underlying economic trends are better than those headline numbers suggest. Many economists think the fourth-quarter GDP contraction, for example, was an anomaly related to the fiscal-cliff deadline at the end of 2012. One hint is that defense spending plummeted during the fourth quarter, after rising by more than usual the quarter before.

[ENJOY: Political Cartoons About the Economy]

That suggests defense agencies accelerated spending last year, out of concern that their budgets would get cut as part of the fiscal-cliff deal. That didn't happen, with spending cuts that were supposed to go into effect January 1 delayed until March 1.

The January unemployment report was lackluster, but there were big upward revisions to earlier numbers, which happens sometimes as government statisticians gather more data and refine their methodologies. In November and December, employers added 443,000 jobs, according to the new estimates, rather than 301,000, as previously reported. That's 142,000 additional jobs in just two months.

There was also a sizeable drop in the number of long-term unemployed in the latest report, with that number falling to the lowest level since 2009. Meanwhile, for all of 2012, the total employment tally was 647,000 more jobs than prior numbers showed. (Note to conspiracy theorists: If the Obama administration were inflating the numbers, wouldn't they have done so before the November election?)

[READ: Business Leaders Missing From Obama's Cabinet]

The upshot is that the economy may be considerably stronger than headline numbers have led us to believe. "This could be a breakout year for the economy," Bernard Baumohl of the Economic Outlook Group trumpeted in a recent note to clients.

There are several specific reasons economists are becoming increasingly optimistic. One is housing, which was a net drag on the economy until home prices bottomed out last year and starting drifting upward. Housing is now contributing to growth. Builders, for instance, have hired about 300,000 new construction workers during the last two years. A remodeling boom is boosting sales of appliances and other big-ticket items.

The upturn in housing, coupled with the strong performance of the stock market since 2009, has restored nearly all of the household wealth lost between 2007 and 2010. Before the recession, Americans' total net worth peaked at about $66 trillion. It bottomed out at about $49 trillion in 2009, but has now bounced back to $65 trillion or so and will probably exceed the earlier peak soon. That's a huge relief for millions who used to feel their hard-earned wealth was simply evaporating.

[NEWMAN: Stocks May Not Hit New Peak Until Summer]

Other hopeful signs of an economic rebound: Income and spending have been rising more than expected, and Americans saved a higher than average portion of their income at the end of 2012. Business spending may be on the verge of picking up, too.

And traders hope the strong stock-market performance in January, when the S&P 500 stock index rose by 5 percent, augurs a yearlong rally. In years that start with a January gain, the stock market rises by an average of 11.2 percent, according to Sam Stovall of S&P Capital IQ--thus the adage, "As goes January, so goes the year."

There's still plenty that could go wrong, starting with ongoing budget battles in Washington that could drain confidence and torpedo the economy. Consumers already seem wary on account of the expiration of the payroll tax cut, which has trimmed the size of every paycheck in 2013. And the down-to-the-wire fiscal cliff negotiations late last year showed that Washington politicians are as deaf as ever to concerns in the real economy.

But Americans may also be growing more inured to political dysfunction. The stock market didn't tank in the run-up to the fiscal cliff, as some investors worried might happen. Consumers didn't close their wallets either, and businesses hired in modest numbers when many analysts expected them to put everything on hold.

If those trends continue in 2013, what happens in Washington will matter less and less, which could be the best economic development of the last five years.

Rick Newman's latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.

More From US News & World Report


View Comments (6)

Recommended for You

  • Tycoon buys 30 Rolls-Royces for Macau hotel

    A Hong Kong tycoon has placed the biggest ever order for Rolls-Royce cars, agreeing to buy 30 Phantoms to chauffeur guests at a luxury resort he's building in the global gambling capital of Macau. Stephen Hung's $20 million purchase surpasses the 14 Phantoms bought by Hong Kong's Peninsula Hotel in…

    Associated Press
  • “Bad news for greedy insurance companies…"

    Quickly and easily claim ALL the money you deserve from your car accident. Click below to calculate how much more you should get!

    AdChoicesFree Crash CalculatorSponsored
  • Before You Buy Alibaba, Check Out 4 Top China Stocks

    Before You Buy Alibaba, Check Out 4 Top China Stocks While investors gear up for Alibaba Group 's (BABA) hotly anticipated initial public offering, don't forget about other Chinese stocks that are worth keeping an eye on. Today's Young Guns Screen of

    Investor's Business Daily
  • "The Retiree Next Door": How successful retirees stretch their savings

    "The Retiree Next Door": How successful retirees stretch their savingsBy the time she hit her late 40s, Toni Eugenia wasn’t sure she would ever be able to retire. Eugenia, 56, a pharmacy technician who lived in Houston, was nearly $200,000 in debt and

    Yahoo Finance
  • Play

    Citi, Bank of America Offer Discounted Mortgages

    Citigroup and Bank of America will offer mortgages at discounted interest rates to help borrowers with low incomes or subprime credit. AnnaMaria Andriotis joins MoneyBeat. Photo: Getty.

    WSJ Live
  • Fed comments tell Cramer to buy Apple & more

    Jim Cramer spent Wednesday afternoon sifting through the Fed statement and the comments made by Fed Chief Janet Yellen in the subsequent press conference. "The trick with the Yellen regime, like the trick with the Ben Bernanke regime before her is to remember that they speak for the common person,"…

  • Apple to unveil new iPads, operating system on Oct. 21 : report

    The company plans to unveil the sixth generation of its iPad and the third edition of the iPad mini, as well as its operating system OS X Yosemite, which has undergone a complete visual overhaul, the Internet news website said. Trudy Muller, a spokeswoman for Apple, declined to comment. The iPad is…

  • Margaritaville casino owners seek bankruptcy

    The owner of Biloxi's Margaritaville casino has filed for Chapter 11 bankruptcy protection Tuesday, only hours before a hearing where the landlord aimed to seize the property. The filing by MVB Holding LLC in U.S. Don Dornan, a lawyer for landlord Clay Point LLC, said the company had planned to ask…

    Associated Press
  • Get Samples Like These Delivered to Your Home!

    Join GetitFree to have samples flooding your mailbox and front door!

    AdChoicesGet it FreeSponsored
  • Embraer to sell 50 E-175 jets to Republic in $2.1 billion deal

    Brazil's Embraer SA, the world's third largest commercial planemaker, said on Wednesday it booked a firm order from U.S. The deal, which will be included in Embraer's order book for the third quarter, is valued at $2.1 billion, the planemaker said in a securities filing. The planes will be operated…

  • Here's What Mark Cuban Wishes He Knew About Money In His 20s

    Cuban is the owner of the Dallas Mavericks basketball team. Billionaire investor and entrepreneur Mark Cuban is generous with his advice. When we asked him what he wishes he'd known about money in his 20s, he said:

    Business Insider
  • SHOE COMPANY: Our CEO Just Disappeared And Most Of The Money Is Gone

    "and like that: he's gone." This is an actual headline from a company press release: "CEO and COO disappeared, most of the company's cash missing." (Via FastFT) In a statement, German-based shoe company Ultrasonic said its CFO,  Chi Kwong Clifford Chan, has been unable to reach the company's CEO,…

    Business Insider
  • Gold loses luster on Fed; Barclays cuts forecast

    Barclays cuts gold forecasts, sees increasingly bearish backdrop Bloomberg MA MB MC MD ME SAN FRANCISCO (MarketWatch) — Gold prices dipped Wednesday on concerns about a stronger dollar ahead of the Federal Reserve policy statement and in response to Barclays lowering its gold forecast.

  • Billionaire Investor Says Chinese People Work Harder And Western Companies Could Face Deep Trouble After Alibaba IPO

    Michael Moritz, the chairman of VC firm Sequoia Capital, is a huge fan of Chinese internet companies and reiterated his enthusiasm for the Chinese market in an interview with The Wall Street Journal Wednesday. The billionaire investor described the Alibaba IPO as a “major landmark event” that is as…

    Business Insider
  • Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More

    Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More Stocks were firm on Wednesday morning ahead of the FOMC meeting outcome. Tuesday’s rally may have sparked higher interest again, and investors are looking for bargains

    24/7 Wall St.
  • How To Find Your Dream Vehicle

    What's your dream car?" is a simple but entertaining game to find out what car fits you, your friends and foes bestYour Dream Car Make the Dream

    AdChoicesVehicle FinderSponsored
  • Fed renews zero rate pledge, but hints at steeper rate hike path

    The Federal Reserve on Wednesday renewed its pledge to keep interest rates near zero for a "considerable time," but also indicated it could raise borrowing costs faster than expected when it starts moving. In a statement after a two-day meeting of its policy-setting Federal Open Market Committee,…

  • Boeing may have outfoxed Musk, but it could have bigger problems

    Elon Musk is arguably one of the greatest entrepreneurial minds of the 21st Century, but he was outsized an old school aerospace giant. Boeing won the bulk of NASA’s contract for a space taxi.  One of the other companies vying for the deal is SpaceX, the company headed by Tesla’s Musk, will get a…

    Talking Numbers
  • Romney-Sized IRAs Scrutinized as Government Studies Taxes

    The preliminary report attaches data to an issue that drew attention during the 2012 presidential campaign, when Republican nominee Mitt Romney reported an IRA worth $20 million to $102 million. Senate Finance Committee Chairman Ron Wyden said many of these "massive" accounts come from deals…

  • 6 Things Debt Collectors Wish You Knew

    The work debt collectors do is not popular, and has become increasingly derided by those who don’t like what we do or simply don’t know the facts about debt collection. Too often, debt collection is painted with a broad brush to create a portrait that isn’t accurate, and doesn’t properly educate…
  • Play

    What the Fed Meeting Means for Bonds

    Janet Yellen & Co. are expected to hint at their timetable for raising interest rates. Here's how investors should prepare ahead of the meeting.

    WSJ Live
  • The Government Keeps Helping People Buy Failing Cold Stone Creamerys

    Would you loan someone money to buy a Cold Stone Creamery franchise if you knew that more than a quarter of those loans default? Over the last decade, franchisees in the Cold Stone Creamery ice cream chain defaulted on 29 percent of working-capital loans backed by the government, costing taxpayers…

  • 10 Beauty Tips to Hide Your Hangover

    While it is impossible to recover the lost hours of sleep, you can look fresh and alert with these 10 beauty tips that will help hide your hangover.

    AdChoicesAnswers DIYSponsored
  • Russian billionaire placed under house arrest

    A billionaire Russian tycoon was placed under house arrest Tuesday in a money-laundering case that has drawn comparisons with a government crackdown on Russia's Yukos oil company more than a decade ago. The Investigative Committee, Russia's top investigative agency, said that Vladimir Yevtushenkov,…

    Associated Press