Budget Accord Seen Crimping U.S. Expansion

Elimination of payroll tax cut will limit first-quarter growth to 1%.

The U.S. economic expansion probably will be crimped without being halted by the budget deal that won approval by the House of Representatives last night after being forged by the Senate and White House.

The agreement permanently reinstates the income tax cuts for most workers that ended Dec. 31, continues expanded unemployment benefits and delays automatic spending cuts for two months. It would let a two-percentage-point payroll tax cut expire.

Limited Progress

The first-half slowdown will mean that the U.S. will make limited progress in reducing unemployment in 2013, according to projections by Ethan Harris, co-head of global economic research for Bank of America in New York. He sees the jobless rate falling to 7.5 percent in the fourth quarter of 2013 from 7.7 percent in November 2012.

Exhaust Measures

The Treasury probably will exhaust such measures by late February or early March, setting up another confrontation between President Barack Obama and congressional Republicans, according Andrew Laperriere, senior managing director for ISI Group in Washington, said in a Dec. 31 report to clients. Laperriere spent eight years working on Capitol Hill before joining ISI in 1999.

Bouncing Back

Banks are bouncing back as well, with profits in the third quarter the highest in six years, according to the Federal Deposit Insurance Corp. in Washington.

Page 3 of 4

Copyright 2016 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Comments

Advertisement. Closing in 15 seconds.